Spanish Economy

The Euro-zone is in disarray and the Euro is struggling to survive.  Greece has already collapsed into chaos because their generous socialist programs can no longer be sustained and now Spain is sinking into chaos as well.   Although the root causes of these problems should be an object lesson in the failures of socialism no one in the Obama administration seems concerned.  Socialism as a form of government has failed and it should be apparent to anyone watching because it is financially unsustainable over the long haul.

When Zapatero and his Socialist Workers Party took power their goal was to improve the already generous social programs already in place.  Indeed the objective was to perfect or even surpass the lavish social programs that have long been the hallmark of Western Europe.  To achieve this objective Zapatero raised the minimum wage and greatly expanded health insurance to cover everything from minor issues up to and including sex changes.  He made government scholarships available to everyone and young adults were given rent subsidies that allowed them to leave the parental home.  Because of the declining birth rate he gave mothers $3500 for the birth of a child and free nurseries for toddlers.  Then he gave stipends to the elderly for nursing care.  All of these benefits were government provided but like all socialists they were predicated on the present without regard for the future.  The declining birth rate alone should have been a red flag because it signaled that the tax revenues would eventually not cover the financial obligations.

 

Well the piper must be paid and as Margaret Thatcher once observed “the problem with socialism is that eventually you run out of other peoples money” and that is where the Euro-Zone countries now find themselves.  They are faced with growing financial obligations with declining tax revenues and a population accustomed to low retirement ages, great retirement benefits, and many government benefits.  Greece allows retirement at 50 with 95% of your last wage as your retirement.  France has a 35 hour work week and attempts to raise that to 37 hours was met with great resistance.  Spain isn’t quite as bad but when now that reality has set in Zapatero and his socialist government must now find a way to pay for all of those great benefits.  To that end Zapatero had negotiated a deal with unions to freeze pensions and raise the retirement age from 65 to 67 and the deal includes reducing union bargaining rights.  Additionally Zapatero has suspended the childbirth bonus and reduced civil servants pay by 5%.

Of course these actions have not gone over well with the people accustomed to generous government programs and thousands have taken to the street in protest.  But the government of Spain isn’t alone in being forced to cut back on these social welfare programs.  Greece led the way and they are still reeling from the impact as protests and strikes continue but Western Europe must make these cutbacks because their debts and deficits have risen to dangerously high levels.

The governments of France, England, and Germany have accepted the necessity to cut back on their spending and have made fiscal discipline their objective, but even so there is resistance.  For example France tried to raise the retirement age to 63 and met with such stiff resistance they had to back down.  The cherished social welfare programs that characterize European governments can no longer be sustained because they cost more than the revenues allow and to continue would mean bankruptcy.  But in Spain these reductions have been particularly painful because they are being carried out by a Socialist government.  Socialism is based on unbridled welfare spending, employment, an generous government programs paid for through high taxes on the wealthy.  Businessmen and bankers are viewed in the Socialist ideology as wicked capitalists who exploit the workers.  Not unexpectedly the wealthy simply leave taking their capital with them leaving unemployment behind them.  The government can no longer afford all of these programs because the capitalists are no longer willing to see their wealth taken to be redistributed to those who did not earn it.

These welfare programs, tax the rich schemes and wealth redistribution programs favored by the Obama administration are inexorably leading the US into the same problems being face throughout Europe. 

 

AHHH The French

The French just can’t seem to accept that they must actually work for a living and compete in the marketplace just like everyone else. Even more ironic is that Germany started its failed march to European dominance with the Franco-Prussian War and two world wars, but is now poised to achieve that goal without a shot being fired. The Germans live the good life (for European standards) by working hard and living within their means. Alas the French live the good life but seem to expect that the government should pay for it. The people think a 40 hour work week is exploitation and a 32 hour work week is as much as any employer should expect. Of course the problem with socialism is that eventually it cannot be sustained. The proof of this is being played out across Europe as the economies of Spain, Portugal, Ireland, and Italy teeter on edge of financial collapse. The economy of Greece has already imploded and threatens the Euro itself.

Now the French who view themselves as the dominant force in Europe are finding that not only are they not the dominant country, but that it is Germany calling the tune. Faced with the prospect of actually having to give up some of their benefits and actually work a 34 hour work week, they threw out President Sarkozy and elected inexperienced Hollande. Unfortunately Hollande had no real experience, had no real plan, never took Economics 101, but was sure his Gallic Charm would enable him to win over Germany, the tax payers in both Germany and France, without actually having to make any financial sacrifices. Alas his socialist economics seems to have failed him. The reality is that money will gravitate to the highest return and flee extortionate taxes.

Hollande felt that what was needed was higher taxes and that the rich should pay their fair share, a typical socialist position. In his view the fair share of the rich was 75% of their income, after all the rich should be forced to share their wealth with the workers. Not unexpectedly the rich simply moved their wealth out of the country. Renault moved 70% of their manufacturing to low wage Trukey and ArcelorMitta the French steel manufacturer shut down two furnaces in preparation of shutting the plants. The government’s response to this is to introduce a law forcing manufacturers to sell their idle facilities at a price established by the courts. Apparently the socialists seem to think that any sharp entrepreneur would jump at the chance to buy these facilities just to keep the workers employed.

Hollande was elected on the basis that he would preserve “the social model” while engineering an economic recovery. Neither Hollande nor the socialist electorate realized these are conflicting goals, especially in light of the high level of protection the French worker has. Nevertheless French unemployment is at a 13 year high with more layoffs coming. It is very difficult for an employer in France to layoff employees and it is very expensive due to the required severance costs. Consequently, when employers actually layoff people they are very reluctant to rehire and the tendency is to move those jobs overseas where it is cheaper and the rules more flexible. This means that reducing high unemployment is very difficult and takes a long time.

The Euro is in real danger and unless Hollande can get control of the French economy it may be unsustainable unless the Germans are willing to step up and bail him out. However, the Germans are tired of subsidizing the life of the rich and famous enjoyed by so many countries in Europe. Plus the Germans are also feeling the impact of the slowing world economy and may not be able to continue supporting these failing Club Med European economies. The stark reality is that socialism cannot work unless there are enough tax revenues to sustain the government programs. In a slowing economy the government must react in a business like fashion and reduce expenses which means cutting programs. When the people are accustomed to lavish government handouts this becomes almost impossible so it is now up to Hollande to show us how this is done.

France, The Euro and Beyond

I have been fascinated by the impact of some of the recent events which have rocked the world economy. Of course the first is the reaction by the Greeks to their failed socialist economy which can only be described as denial. The denial being that socialism is a viable governmental form when the costs outstrip the revenues. Their solution is to blame the Germans, blame capitalism, blame the banks, blame anyone and everyone except that person they see in the mirror. So they threw out the government and their austerity program and are now happily returning to their old ways without any idea whatsoever of how to pay for anything. Like all socialists they seem to believe that the “government” will pay for everything by taxing the rich. Of course all of the rich in Greece left a long time ago and when they joined the Euro-zone they gave up their control of their currency, this was a small point which they ignored in their haste to expand their Club Med life style. Now we see the same plan developing in France – that is a total denial that socialism doesn’t work. The French refuse to sacrifice anything to austerity. They feel they are being exploited by being expected to work more than a 35 hour work week and to retire at 62 rather than 60. They know that capitalism is evil and socialism guarantees that the government will always be there for them. Of course they are a little vague regarding where the government gets the money to pay for their benefits other than from the “rich” meaning companies because any individual with any substantial income has already moved his assets out of the country. Furthermore, the socialist government has made it so difficult to lay anyone off that no business will hire new employees. Instead any new jobs are being sent offshore where it is easier to control the staffing. The current thinking in France is that socialism provides for everyone assuring everyone an equitable share of the wealth. Anyone who doesn’t grasp the benefits of socialism must be selfish and greedy, and this brings us to the Euro. Money is an abstraction whose only value is what we collectively give it and the ability of the issuing government to ensure that value, so the dollar, the pound, the yen, and other currencies are monetary instruments guaranteed by their governments but not so the Euro. The Euro is an artificial currency with no specific government guaranteeing it and no specific European government can print new Euros – hence the problems in Greece, Italy, Portugal, and throughout most of the Euro-zone to a greater or lesser extent. The Euro Zone is dominated by socialist governments whose consistent policies have been oriented toward maximum employment with the least amount of work and the most generous benefits. However, the party is ending because none of the Euro-zone countries can sustain these benefits based on their revenues which mean they must be reduced. These austerity programs are not popular but if they are not implemented the Euro-zone can collapse France is the most recent country to refuse to accept these austerity driven reductions in benefits. France was one of the driving forces behind the creation of the Euro-zone thinking that they would be the dominant force. This turned out to be a gross miscalculation because their socialist policies focus on employment and not on productivity. . The unintended result ironically has been higher unemployment as companies refuse to hire new people unless forced to. The wages are inflated relative to the output so these companies look overseas for growth which results in a double strike at home—higher unemployment means less tax revenue and higher unemployment costs. The government expands as new government jobs are created and with these jobs comes greater bureaucracy and with that bureaucracy comes lower productivity and an incentive for employers and investors to move overseas. Today the Greeks are voting to decide whether to continue their Club Med economy or to adopt some measures that would keep them in the Euro-zone. Either way the party has ended because the piper must be paid. A return to the Drachma will certainly cause rampant inflation which will create serious problems but staying with the Euro will force serious austerity measures which will effectively demonstrate that socialism cannot be sustained over the long term. Will the French get the message? Will the socialists in Europe get the message? Only time will tell.

China – A Strategic Threat?

Apparently in an effort to cover up the total failure of Communism and the growing failure of Socialism, the popular press has chosen to forget that China is actually the People’s Republic of China and that it is in fact a troubled communist country. Instead we are treated almost daily to the glowing reports of China as an economic powerhouse that is rapidly taking over the global market. Unfortunately the popular press is not noted for its objective reporting or critical thinking so perhaps it is time to look behind the press releases.

While China is a large country with a huge population, it is not a homogenous population in economics, culture, or ethnicity. Historically China has been a series of fiefdoms or provinces that have not always been comfortable or even friendly with each other. Imperial China was more or less stable but hardly rich and hardly a military threat. But also the coastal regions of China have always been economically stronger than the interior and have prospered at the expense of the agrarian interior regions. It was this economic disparity that allowed Mao Tse Tung to overthrow the Chinese government and to establish what Communist China is today.

However, the reality seems to be that nothing has changed under the communists and the same economic divisions remain. In fact what appears to be a strong and competitive Chinese economy is more of a veneer than a reality. The reality is that two thirds of the Chinese people have incomes equivalent or below third world countries. While the Communists unified China they also once again demonstrated the weakness of communism, which is universal poverty. The current government recognizes the growing instability of their government and has sought to achieve greater stability through mass employment. But mass employment requires industrial growth, subsidies, and expansion of consumption either domestically or via exports. But with central planning – the mainstay of communism – there is no thought given to markets or margins – just to employment. The result is exports become a necessity because the domestic market cannot absorb the output. Therefore, China must export their goods in order to maintain political stability through salaries and the revenues necessary to support the agrarian majority.

The economic downturn has affected the economies of virtually every nation but with its dependence on exports China has been hit particularly hard. China depends on the American and European markets to absorb their exported goods, but with their declining economies the law of supply and demand has taken over. The demand for Chinese goods is down and the competition for those goods is up. China is caught in a dilemma – they cannot reduce their output nor can they reduce their subsidies to the interior and their manufacturing base. They cannot layoff workers because employment is key to their communist principles, but they cannot sustain their current production levels either. The Chinese government is trapped in the inherent flaw of Marxism – central planning and government ownership rather than private ownership. Maintaining stability is dependent on goods flowing overseas while raw materials flow in, but maintaining this flow is a growing challenge because the Communist system ignores profitability in favor of employment which in turn breaks the self regulating law of supply and demand. This problem is further aggravated by inflation, which not only raises the cost of subsidizing the interior but it drives up the cost of the manufacturing output which reduces their competitiveness with other global suppliers. An alternative might be to produce higher cost products like automobiles, which China is attempting, but this requires a different workforce – one with more education and training than what is available today. But even if they are successful in making this transition they will come face to face with Germany, Japan, and the United States. The Chinese government is caught in a situation they cannot control. They are coming face to face with the fatal flaw in socialism, which is employment as the priority rather than efficiency.

Greece & The Euro-Zone

The French drove the campaign for the Euro thinking that with a unified Europe the incessant wars that have characterized Europe for a thousand years would stop and France would once again be the dominant force in Europe and Germany would be contained. Alas the Euro-Zone had fatal flaws from the outset and instead of France becoming the dominant force in Europe it has turned out to be the Germans. Now the Euro-Zone must dance to the German tune because it is Germany who has the money necessary to keep the Euro from collapsing and it is this power that is being displayed in the Greek Debt crisis now rocking the Euro-Zone. But Greece is just the tip of the socialist iceberg that is threatening Western Europe. Eastern Europe isn’t affected because they learned their lesson about Socialism and Communism from the USSR, a lesson Western Europe did not heed, so a review of Greek Socialism seems to be in order.

Greek Underground
For the 2004 Olympics it was necessary to install a modern transportation system in order to avoid the mass traffic jams that characterize Athens. The cost of this system was roughly $2.4M of which the Greeks paid very little with the bulk of the money coming from the Euro-Zone. One would think that the revenues from this system would eventually pay off the debt, but that is an outmoded capitalist concept. In Socialist Greece they have the “honor” system where they installed “honesty machines” where the passengers are urged to pay for their passage. Apparently the Greeks are not very honest because virtually no one pays so not only is the new underground not paying off the debt it isn’t even covering the maintenance costs – so the underground is totally supported by the government and the government is supported by tax revenues. In a capitalist country the government would simply raise taxes to cover the cost but Greece is a socialist paradise where taxes are more of a nuisance than a reality.

Greek Railroad
If the Greek Underground is a disgrace the Greek rail system is even worse and typical of how socialism operates. The average salary for railroad employees is an incredible $90,000 which includes cleaners and track workers. This is a salary treble the average private sector salary. The wages – just the wages – for the Greek railroad system is $750M but the annual ticket sales is only $120M. In a capitalist society this would call for immediate action but not in socialist Greece where the government is focused on employment and not profit.

Greek Tax Policies
While the Greeks aren’t paying for their underground tickets they aren’t paying their taxes either or at least no where near the amount of taxes they should be paying. In fact only 5000 people out 12 million admit to earning over $100,000 a year where studies have shown that more than 60,000 people have investments over $1.5 M and this doesn’t include money in overseas banks. How is this possible? Very easy since the individual taxpayer is allowed to state their own earnings for tax purposes and these are rarely challenged. Consequently many Greeks state their taxable income to be below taxable threshold of $15,000 even they own vacation homes, boats, and other luxury items. To call the Greek system corrupt is just accepted and is so accepted that there is a semi- official rate for bribes for passing false tax returns and each Greek family is estimated to spend an estimated $2500 per year in bribes. If this isn’t bad enough the Greek shipping magnates – some of the wealthiest people in the country are tax exempt because of the benefits they bring to the country even though the Greek shipyards are virtually idle employing about 500 people.

Greek Pensions
Naturally in a socialist country pensions are very dear to the people who expect the government to take care of them even if they don’t pay taxes or work very hard to earn the pensions. In Greece the retirement age is 50 with a pension of 95% of their last year’s earnings and this includes pastry chefs, radio announcers, hairdressers, and masseurs whose work is classified as “arduous and perilous” to justify the 95%.

Greek Schools
Once Greece was allowed into the Euro-Zone money began to flow into the country and into public life making life better for all Greeks. This allowed salaries to increase without requiring more production and this impacted virtually all aspects of Greek life including the school system. In a socialist country performance is not measured because the objective is employment and not efficiency. Consequently the Greek school system hired more people to manage the system so now that system is overstaffed and employs four time more teachers per pupil than Finland who has the highest rated educational system in Europe. Not surprisingly the teachers, who are in fear of being discharged are hopelessly ineffective so now parents must hire private tutors for their children.

Greco-America
Does any of this sound familiar? Is America on a similar path to financial disaster? Consider the power of the unions who demand ever higher wages without increasing productivity and quality. Consider the educational system now dominated by unionized teachers who are turning out graduates who cannot read, who have no clue of history or geography. Consider the growing underclass supported by first one welfare program than another. Consider the large pensions and salaries being paid to public employees that far outstrip those of private industry. Consider the growing demand by the underclass for higher taxes on the rich to pay for their welfare system. Consider the growing interference by the government with private industry. All of these things are indications that our government is slipping inexorably into the financial quagmire that we find in Greece.

China -- Red Dragon or Paper Dragon

From what you read in such prestigious sources as the New York Times you would think that everybody should start learning Chinese because China is not only a rising military power but an economic power house that is overwhelming all competition. But is that a realistic appraisal of the situation? I think a little critical thinking may be in order.

First the New York Times is not noted for its veracity or being in love with capitalism nor is most of the American media The critical thinking seems to be reserved for American business and foreign policies rather than any critical analysis of what lies beneath the public policies and positions of the Peoples Republic of China. In fact when was the last time you saw any reference to China as the “People’s Republic of China”? Currently the PRC is simply referred to as China which may just be laziness of the part of the media but the fact is failing to call the PRC what it is in reality is misleading. The reality is that Communism or Marxism are demonstrable failures as a government. Furthermore Socialism as a governmental form is far from successful as can be seen in the current upheavals in Greece, Italy, France, and across Western Europe in general. The fatal flaw in these political philosophies is that their objective is employment not efficiency and wealth redistribution not wealth creation.

There is no free enterprise in the PRC in spite of appearances. Permitting a family or an individual to set up a noodle stand is not quite the same as opening a factory. The Chinese government permits these small businesses to operate more like a safety valve on a steam engine – the internal pressures on the Chinese government are immense and growing. These pressures are both political and economic but the economic ones are by far the greater.

In the PRC the government owns everything – there is no true private ownership. The government owns all of the factories, the land, and all means of production from rice to warships which mean that they are the sole employer and that they control all prices. But the PRC, like all governments is faced with a finite amount of revenue that must cover their overhead, but unlike capitalist governments they cannot raise taxes because that is just taking from one pocket and putting it in another. Consequently the PRC is forced to increase revenues from exports which means they must compete in a global market for both labor and goods. To date the PRC has been able to maintain the fiction that they are a competitive powerhouse but in reality they are operating a giant Ponzi scheme.

The PRC is manufacturing and exporting vast amounts of product because foreign manufacturers are sending thousands of jobs to this “low labor cost” market. But the manufacturing centers are along the coastal areas where the quality of life is far superior to the internal quality of life. This is leading to a growing influx of young people seeking a better life which in turn is causing pressures on housing as well wages as the cost of living increases. If the wages increase the competitive position vanishes and that foreign investment will move to other low labor cost markets. The PRC has attempted to deal with this issue by subsidizing the manufacturing which means that the cost of goods being exported are a) below cost b) at cost or c) with low margins. This in turn has led to quality issues but the real problem is that these subsidies are draining financial resources from the interior infrastructure. While the internal infrastructure cannot be improved the major problem is that it cannot even be repaired. The PRC has suffered greatly from major floods and earthquakes which have left much of the interior in need of repair, which means the government is faced with some very difficult decisions. They cannot reduce the subsidies without raising prices which will create a demand for higher wages which will drive foreign investment away. They can fail to quickly repair the damage but the rural areas are already restive due to their quality of life versus that of the coastal areas. What ever they decide there will be major changes in the economy of the PRC.

And this brings us to the Chinese Military. As Talleyrand once said regarding Napoleon’s military exploits “the problem with an army is that it eats” and thus the PRC has this issue to deal with as well. Armies are pure overhead. They cost a great deal to feed and equip while providing nothing in peace time, so they must be employed or reduced in size. The PRC cannot use their army by adopting an expansionist policy nor can they reduce its size because they would still have to pay the soldiers being released because the government is the sole employer. But there is another less visible issue and that is the military itself. Generals do not like to see their power reduced but more importantly the soldiers themselves are the sons and daughters of farmers and small shop keepers. These are the people who are suffering from a poor quality of life which is aggravated by the damaged infrastructure. A Failure to alleviate the suffering in the rural areas could easily transfer to a restive military, so the central government cannot ignore the problems of the interior and they are caught on the horns of this dilemma. If those weren’t problems enough there is another historic problem that has plagued China for thousands of years and that is corruption. Nepotism, bribery, and kickbacks are a way of life and part of the Chinese culture. The PRC does what it can to stop this and do prosecute and act on the most outrageous examples, but the problem is endemic and undermines trust in the government.

So China – the People’s Republic of China – is perhaps more of a Paper Dragon than a real one. While they appear to be crushing everything in their path, the reality is that Communism and Central Planning are demonstrable failures. The PRC cannot continue to sustain the house of cards they have built indefinitely and their dominant position in world trade must eventually collapse from the internal economic pressures.

Germany and the Fourth Reich

With the rise of Hitler in the 1930’s Germany attempted to establish the Third Reich militarily as it crushed all of Europe except Russia, which it left devastated. With the fall of the Third Reich the Europeans led by France attempted to constrain Germany while striving to return France to greatness. This effort to control Europe led to the creation of the Euro-zone and the Euro as the common currency. Alas as usual the arrogance of the French created a situation that instead of containing Germany and increasing French power, it has had the opposite effect. The European governments are socialist with populations that are not driven by a strong work ethic but with a strong expectation that the government will take care of them. This has given the hard working Germans a tremendous advantage as they work and make money while the rest of Europe vacations and wallows in their socialist giveaway programs.

Following WWII the Europeans treated Germany as a defeated foe and exploited Germany as Germany rebuilt but this exploitation was mostly financial as they used Germany’s financial growth to gloss over the growing problems with their socialist economies, mostly led by the French whose idea of sacrifice was to work more than 32 hours a week. The Germans accepted this situation for a long time but with the cost of Germany reunification and the end of the cold war Germany began to reassert itself and ask why they were carrying most of the financial burden for the Euro-zone? In fact the current financial crisis in Europe has made several things abundantly clear. First there is no central control and the European Congress is more show than effect. Secondly the only economy in Europe strong enough to exert control and influence financial policy is Germany, and finally, there is little prospect that the weaker European countries will be able to recover financially without some external control and the only logical country to exert that control is Germany.

The French led the charge for the Euro Zone thinking that they would be in charge and would dominate Europe, but they didn’t anticipate what happened when the Euro was introduced. The Maastricht Treaty created a common currency but it also allowed for national control of finance, banking, and fiscal policy. This meant that the countries had their own tax policies but would not share banks but would share interest rates. While the Euro-Zone would share a common currency there was no one in charge of the economy or to set central fiscal policy. But while Europe had been living off of Germany for years they simply assumed that Germany would just continue supporting the rest of Europe financially so there was never any attempt to curtail spending or to align taxes to all of those expensive socialist programs. While that was bad enough it seems that with the lower interest rates – due to the shared interest rates in Maastricht – some of the Euro-Zone members – like Greece – went on a borrowing spree as interest rates dropped and the cheap credit flooded the Euro-Zone.

But now the Germans have had enough. They have had to cut back on many of their socialist programs to maintain Euro-Zone fiscal stability. But they no longer feel that they should support and pay for the fiscal irresponsibility of the Euro-Zone members while they are having to sacrifice to subsidize this irresponsible behavior. The result has been the creation of the European Financial Security Facility (EFSF) which raises money on the bond market and funnels that money to the weak Euro-Zone members, but the EFSF is run by Germany and it is the Germans who call the tune – not the French or the Euro-Zone members. Under the EFSF the financially stressed Euro-States can now access the needed funds but only with German permission, because this is not under the control of the European Union. In fact the EFSF can act independently of the EU in any future financial crisis. The reality now is that any distressed European State can get any money they may need but by doing whatever Germany tells them to do.

The reality now is that any Euro-Zone state who accepts financial assistance from the EFSF means ceding financial control of their economy to Germany. This means that these countries will be forced to accept German austerity programs but the fine print shows that the conditions imposed by Germany don’t have to strictly be financial. In effect Germany now controls the Euro-Zone economy and with that control they can now dictate policies that extend beyond the financial -- if they choose to do so. Failure to accept German direction simply means that Germany can cut off the flow of money which would devastate the weak socialist governments. Germany has attempted to establish control over Europe militarily with the last attempt being Hitler’s Third Reich but now it seems Germany has established control over Europe without firing a shot. Rather than out shooting the French and the rest of Europe they have simply out worked them. Welcome to the Fourth Reich

China and Economics

The idea that China is rapidly taking over the world economy is a widespread belief, but like so many things related to Socialism and Communism the realities are frequently ignored by pandering press. Currently the focus is on Greece and Europe where all of those socialist dreams are rapidly becoming an economic nightmare as it becomes apparent that government spending cannot exceed tax revenues. But there are other socialist countries where the stark reality of economics is beginning to rear its ugly head and China is one of those.

China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.

Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.

Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.

But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.

Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.

China and Economics

The idea that China is rapidly taking over the world economy is a widespread belief, but like so many things related to Socialism and Communism the realities are frequently ignored by pandering press. Currently the focus is on Greece and Europe where all of those socialist dreams are rapidly becoming an economic nightmare as it becomes apparent that government spending cannot exceed tax revenues. But there are other socialist countries where the stark reality of economics is beginning to rear its ugly head and China is one of those.

China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.

Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.

Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.

But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.

Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.

America – Europe – Peace

The Europeans can’t stand America because America represents their lack of ability to protect themselves or even to sustain their economies independent of the United States. The Norwegians awarded the Nobel Peace Prize to President Obama in some bizarre hope that Barrack Obama will revert to some previous Presidential policy that will consult with them and actually allow them to guide if not directly veto American foreign policy. I think what the Norwegians are missing is the same thing that Western Europe is missing and that is how fed up the average American is with the Europeans.

During the 19th Century the Europeans invaded and colonized most of Africa. Actions which they either choose to ignore or see as a benefit to the Africans. What they did was to create totally impossible countries which have led to seemingly endless bloodshed in Africa as one tribe fights another and the national borders are ignored because of their artificiality. This European arrogance carried over into the 20th Century as the Europeans continued their centuries old internal battles and squabbles. By 1914 these squabbles led to WW I and the horrendous slaughter as a whole generation was wiped out. It would have even been worse had not the power of the United States interceded and brought the war to a close.

But European arrogance didn’t end with the first war, they continued their age old games of diplomacy as they divided the spoils and laid the foundations for WW II, the Iraqi wars, the Jihadist War now under way and the wars between Israel and the Arab World. It was the European nations that stood by and watched Hitler rise to power along with Lenin and Stalin. From 1919 until 1939 it was peace at any price in Europe and the Nobel Peace Prize went to Neville Chamberlain for his claim of “Peace in Our Time”. The world wallowed in the Great Depression as Europe watched Communist Russia rise fearful that Marxism would spread and hoping Hitler would be a counter force. Finally Hitler made his move and so once again Europe turned to the US to bail them out of a mess that they created, but this time things had changed.

The US became a world super power facing the Russian colossus over a prostate Europe. With the end of WW II the former European powers of France, Germany, and Britain no longer mattered or at least didn’t matter very much. The relationship between the US and Britain suffered a total reversal. Instead of Britain being Lord of Seas with the US being a client, now it was the US who was Lord of the Seas and Air while Britain was – and continues to be – a client. By 1947 what Europe wanted or didn’t want really didn’t matter, the US consulted them but acted on its own. Europe never recovered its military strength or even its economic power. Europe sank into a socialist funk where the people wanted the government to take care of them. They just wanted to be comfortable, to sit in their cafe’s and watch the world go by – which it has. Western Europe is virtually irrelevant today since they have little to no military power and rely on the US for protection – all the while criticizing America for its bellicosity, materialism, and untrustworthiness.

Since the liberation of Europe by America, the Europeans have been rebuilding their economy but they are no longer the great mercantile nations they once were but have become welfare states with high taxes and a work force more interested in vacations than in wealth accumulation. They are terrified that their great protector – the US – will embroil them in a war. They can no longer rely on American to honor their wishes relative to foreign policies. They still consider America to be run by cowboys who have no sense of history or the value of their more sophisticated world view. The Europeans liked Kennedy because he said things they agreed with ignoring his brinksmanship with the Russians and Viet Nam. But since tha time they have hated virtually every other President but they particularly hated George W Bush because he acted unilaterally. They were stunned when he consulted them after 9/11 but then ignored their advice.

Now we find the Norwegians awarding the Nobel Peace Prize to President Obama solely on the basis that he isn’t George Bush. They forget that if it weren’t for those American Cowboys who saved them they would be speaking German. They ignore the fact that it was America who rid Europe of the USSR who had been a threat to them for 70 years. They ignore the reality that Eastern Europe is moving away from socialism and sides with the US on the world stage while Western Europe is in decline due to their heavy socialist programs. The Nobel Committee saw in Obama some one who they think shares their view of socialism and America’s place in the world. That place being where it was in 1914 – subordinate to the will of Europe. Alas those days are gone – never to return no matter what the Norwegians would like to see happen.

President Obama is locked into the reality of the world. He is faced with two wars which he cannot lose because it would threaten world stability for years. His socialist programs are under heavy attack at home and his economy is in a shambles partially due to his attempts to push his socialist agenda. Then he is faced with the economic reality of the rise of India and China both militarily and economically. So while the Norwegians are glad that George Bush is gone what they thought they got may not turn out to be what they wanted, because they represent the past while the US must face the future and President Obama cannot ignore these realities.

THE RICH, THE POOR, AND THE REFORMERS

Civilization as we know it probably began in the Middle East and probably in Mesopotamia or Egypt. These societies were agrarian with each family farming for itself – essentially a subsistence life. However, very quickly these societies divided into farmers and craftsmen and not long after that came military and governors. Of course the governments and the military were consumers not producers so the society had to support them in the form of taxes. Naturally as the society continued to evolve it began to stratify into classes with the military and officials becoming the upper class, the nobility, and the rich. The point of this obvious historical review is to point out that mankind has always been divided into the rich and the poor and that wealth has never been equally distributed. In fact the very idea of equality much less egalitarianism is a relatively modern concept.

Nevertheless this idea that business, businessmen, and capitalists are evil and that the primary purpose of government is to distribute the wealth of society equally. The underlying principle seems to be that the capitalist has no right to the profits because those profits are earned by the workers he employs, therefore, the revenues generated by the business rightfully belong to the workers. Because these capitalists are reluctant to return the profits to the workers who earned them it is the responsibility of government to seize those profits and redistribute them to the workers. The fact that this has never worked in practice is ignored by these social activists who generally have never actually had to earn a profit or been accountable for the results of their decisions. Currently we see this philosophy being employed by Hugo Chavez in Venezuela. He has seized the assets of foreign investors, fixed prices, over employed people, and then blames the US and others for the failure of his policies. The standard of living is declining, goods are disappearing, and while prices are fixed the items are only available on the black market. This result was first observed under the Emperor Diocletian. Lessons from history don’t seem to be learned by social activists.

Of course the most famous of these social reformers was Lenin, who corrected the abuses of the aristocracy by slaughtering all who disagreed with him, seizing all methods of production, confiscating all revenues in the name of the state, and eliminating private property. Theoretically this was supposed to take the revenues generated by the workers and return the wealth to the workers equitably. Of course as George Orwell observed in his famous satire “Animal Farm” some animals are more equal than others. In practice the wealth was not distributed equally but along selective party lines and the result was the stratification of society into the rich and the poor – a fact either ignored or denied by the social activists who even today believe Marx was right and Lenin failed to implement Communism correctly. Hugo Chavez seems to be one of those who think Lenin was wrong and Marxism is right. His failures to make Marxism work he attributes to interference by the US.

But these are the obvious actions of these social reformers whose failures are highly visible. However, there are social activists among us today who still believe in the tenets of Marxism but don’t use such inflammatory names; instead they call for social reforms through legislation. This began with the infamous book “Silent Spring” by Rachel Carson. This book was later determined to be a hoax but the damage was done, industries ruined, and DDT was banned. Of course the damage to public health was ignored in favor of the animals which were alleged to be endangered by DDT. This was followed up by various other efforts at social reform and perhaps the most famous was the ban on smoking. Any empirical ties between smoking and cancer remain statistical even though the incidence of lung cancer has remained steady even as the number of smokers declines. But these were just warm-ups for the social reformers because they really are after business and the rich. These are their real targets because they truly believe that the rich have no right to what they earn as long as there are people living in poverty.

They are attacking capitalism as evil and as allowing the wealth to be concentrated into fewer and fewer hands. They believe that the profits earned by a corporation should be shared with the workers through profit sharing and not distributed to the shareholders – who of course capitalized the business to start with. The idea that it was the capitalists who created and grew the business is ignored. The workers wouldn’t have jobs and there would be no revenues much less profits to share without the capitalists who funded the enterprise initially. These social reformers rarely have actually run a business or have held positions where they were required to earn a profit. Instead, they are opposed to layoffs as a cost cutting measure because in their eyes that is immoral. For them the socialist ideal of employment over efficiency and profit is what should drive industry, not return on investment.

These are the people who are horrified at the “obscene” profits being generated by the oil companies. What is being ignored is the difference between gross revenues and net profits, but this subtlety is ignored in their drive for wealth distribution which is and always has been their objective. This is the whole purpose of the graduated income tax – it is a legislated method to strip the wealth from those who earn it and redistribute it in the form of handouts to those who did not. These are the people who feel that there is something morally wrong with some people being rich while others are poor. They never make the connection between decisions, lifestyle, responsibility and wealth. Those who work hard and make responsible decisions prosper and those who do not suffer the consequences of their bad decisions and efforts to redistribute the wealth to the poor has historically only resulted in increasing the number of poor and lowering the quality of life for everyone. The reality is there are poor and there are rich and there has always been this dichotomy and every effort to form an egalitarian society has failed.

The Rich and the Poor

Once again we hear the cries to tax the rich, to make the greedy corporations share their profits, that the number of people living in poverty is criminal and that the government should do something to alleviate the suffering of the poor. These cries to help the poor are delivered with heartfelt emotion and with such passion that it appears that the poor among us have just been discovered. These cries to help the poor take many forms and among them we see concerts held to raise money to save the family farm. We see charitable organizations like Habitat for Humanity building homes for the poor. There are various government programs already in place to help the poor and indigent, there even re-training programs offered by both private industry and the government, yet year after year we hear these cries to help the poor and more needs to be done. Perhaps it is time to step back and conduct a critical review of the situation, but first perhaps a little historical perspective is in order.

From 4000 BC until 1800 AD the larger portion of the population was devoted to agriculture with a small proportion of the population occupying themselves with trades, government, and the military. Effectively the population was divided into the rich and the poor with the greatest majority being the poor. The stark reality is that farming has always been a subsistence living and only the largest farms could generate enough income to allow for expansion, which enlarged the size of the farm and the income. The large farms evolved into estates and the children climbed the ladder of success reaching senior government posts and aristocratic status, the smaller family farms remained as they were and yielded a subsistence living. Occasionally the sons of these subsistence farmers were join the military and rise through the ranks to positions of great power. Obviously it can be concluded that the family farm provides for a solid family structure and solid foundation for nation states, it does not lend itself to wealth generation or career opportunities for the children. It can further be concluded that society naturally separates itself into the rich and the poor or the haves and have-nots. But if some of the have-nots are able to rise just as some of the haves fall into poverty then the people in these categories are not forever fixed there like the Indian caste system, then it can be concluded that a person’s situation in life to some extent is self-determined.

But if the poor have always existed and in all likelihood will continue to exist, why hasn’t someone or some government solved the problem? Well there have been numerous attempts to solve the problem of poverty. The Gracchi in Rome observed that there was a large number of unemployed in Rome who were subsisting on the state while slaves were tending the fields. Their attempts to reduce the number of slaves tending the crops in an effort to provide more employment to the unemployed in the city resulted in the mob killing them. Since that time there have been numerous efforts to reduce poverty and unemployment through various redistribution programs. The French Revolution was an attempt to establish an egalitarian society, which failed and gave rise to Napoleon. Then there was the Russian Revolution and the rise of Marxism which also failed, although there continue to be many determined Marxists who insist that the failure of Communism was not in the philosophy but in the execution. Jack Kennedy established the Peace Corps which was an attempt to alleviate the condition of the poor in various foreign countries. Whether or not this was a successful program can be debated but there is no doubt that the poor throughout the world still exist. Closer to home President Johnson declared a “War on Poverty” and attempted to establish “The Great Society” which was a program fueled by taxation. This was a huge welfare program intended to improve the lives of the poor which collapsed under its own weight and left a legacy of welfare recipients that now span generations.

After all of these failures to help the poor it would seem obvious that wealth redistribution punishes the rich but does not reduce poverty or the number of the poor. However, to those people who know precisely how the rest of us should live and who seem to abound in every time period, they are once again determined to reduce poverty by taking wealth from those who earned it and give it to those who – in their opinion – deserve it even though they have done nothing to earn it. The complaint is that the number of poor people – not necessarily the poverty stricken but just the “poor” is increasing while the wealth is being concentrated in fewer and fewer hands. It is their idea that corporations should be responsible to their employees rather than to their shareholders seems to be one of the cornerstones of those who are seeking to remake the world of economics. The reality is that most of those employees also own stock in the corporations in the form of mutual funds, common stock, or 401(k)’s. The idea that corporate profits should be returned to the investors rather than to the employees in the form of bonuses and profit sharing is fundamental to their view of economics. The reality is that it was the investors who took the risk and it was their capital that allowed the company to create the jobs that those employees hold. To strip the corporations of their profits may give an immediate boost to the employees but in the long term it will result in fewer jobs as the corporation cannot upgrade equipment, expand the business, or even effectively compete. The basic premise in this philosophy is that the objective of business should be employment and not profit. This is the very foundation of socialism and it had always resulted in stagnation, high taxes, and a lower standard of living.

Currently Hugo Chavez, the President of Venezuela is in the process of redistributing the wealth. He has nationalized business, seized foreign assets, and fixed prices, all in an effort to improve the lot of the poor and improve their standard of living. Of course the result has been just the opposite as goods become scarce, black markets grow, and prices soar. While a laissez faire market may not be necessary for prosperity any plan to redistribute the wealth to alleviate poverty is doomed to failure. The poor are poor for a reason and universally that reason is not the luck of the draw but the result of their decisions. The government might mitigate their suffering but solving the problem of poverty cannot be done by government, the solution is in the hands of the poor themselves.

Surprisingly Rich

Imagine my astonishment today when I found out precisely who the politicians mean when they say we need to tax the rich. I have always wondered precisely who these rich people are they need to be more heavily taxed. Well I nearly fainted when I found out that virtually everyone I know is “rich” in the eyes of the government. It seems the Federal Reserve Board is very diligent in tracking the financial wealth of Americans – apparently excluding all of the illegal immigrants. According to the Federal Government 40% of Americans are poverty stricken (family income of $25,000) with another 30% falling into the middle class with a median family income of $65,000. What is astonishing is that the remaining 20% are “rich” with the top 10% showing a family median income of $170,000. This means a husband and wife each earning $85,000 are rich, which I’m sure would come as a total shock to them. Looking at this from another perspective if you take average salaries a husband and wife team of a teacher and a policeman their combined incomes would place them in the top 75% or upper middleclass. In fact any family whose median income is in six figures, they are in the top income bracket targeted by the politicians who are always trolling for votes on the basis that the “rich need to pay their fair share”.

Income Level Percentile Median Family Income
Rich 90% - 100% $170,000
Upper Middle Class 80% -- 89.9% $99,000
Middle Class 60% -- 79.9% $65,000
Lower Middle Class 40% -- 59.9% $40,000
Poverty 20% -- 39.9% $24,000
Level II Poverty Less than 20% $10,000

So after looking at these numbers it is easy to see why the politicians are so vague about precisely whom they mean when they are on their annual electoral crusade to “tax the rich”.

But as we all know what you bring in goes out pretty much as fast as it comes in and the real test is how much can you keep after the government takes as much as they can because after all the rich should pay more because they make more – I think this is the precise position of the American Democratic Party and the Socialist Parties of various European countries. So does making over $100,000 a year make you rich? The reality is that very few people in these upper income levels feel rich or even consider themselves rich.

Of course income really doesn’t mean much in defining where you stand overall. The better measure would be net worth, that is the total sum of a family’s assets minus all outstanding liabilities. When viewed from this perspective it seems that the national median net worth of the average American Family is $86,000 and this includes all assets like home equity, jewelry, savings, autos, collections, furnishings, etc.


Income Level Percentile Median Family Income
Rich 90% - 100% $833,000
Upper Middle Class 80% -- 89.9% $263,000
Middle Class 60% -- 79.9% $141,500
Lower Middle Class 40% -- 59.9% $62,500
Poverty 20% -- 39.9% $37,200
Level II Poverty Less than 20% $7900

At first glance it would appear that the top 10% (approximately 30 million people) have more substantially more money than the remaining 70% of the population. But included in that top ten percent are Bill Gates, Donald Trump, Warren Buffet, all of those professional athletes, and most assuredly all of those actors in Hollywood who command multi-million dollar salaries while crusading for the poor and demanding that the rich should pay their fair share. Of course at these multi-million dollar income levels, taxes are for the “little people” because batteries of accountants and lawyers insure that little to no tax is paid. These tax loopholes are carefully protected by judicious political contributions (to both parties) while the recipients beat the drum for higher taxes on the rich.

If you would believe what you see on television there is a whole segment of society living the high life in retirement communities. You see them every night as they dance the night away on their Caribbean vacations, where they jog, they fish, they bike, and in general live a great life in retirement because they are rich. Well I think if you would talk to most seniors you would quickly discover that few – very few – can live like these advertisements. In fact even those people in these median income brackets can not afford to live lavishly. Suppose the entire income tax structure were abolished and instead a flat tax was installed with no deductions whatsoever. Everyone and all businesses would simply pay a flat tax on their gross incomes. Do you think the people in the very top brackets, those who support the various politicians would ever allow this to happen? Can you imagine a George Soros, or George Clooney, or MicorSoft paying a flat percentage of their gross incomes to the government? Not a chance! These people want to tax the rich – not themselves. It is important that all of us rich people keep this in perspective when we go to vote for those candidates who think the rich should pay their fair share – that my friend is YOU and you clearly aren’t paying your way. Think about that!!

Death of the Democratic Party

The strength of the United States was founded upon or certainly has been maintained by the two party system. True, there have been attempts to establish third parties, the Bull Moose Party and the Dixiecrats come to mind, but these have never been successful and the country has continued to be steered by first one party and then the other, but always by a Republican or Democrat. This situation has moved the country first left and then right and then back again. Certainly at various times both parties have been plagued with failures, corruption, and scandal just as each has been distinguished by courage, principles, and success. But the dignity, honor, and strength that has characterized both parties seems to be waning, but more so with the Democratic Party which seems to have become impotent as its members are driven further and further left.

The Democratic Party began moving left with the election of Franklin Roosevelt and Harry Truman, but this shift was really barely perceptible and typical of the way the parties had balanced each other because prior to the election of FDR the country had been very conservative and that conservatism – rightfully or wrongfully – was held accountable for the disastrous Great Depression. But the real inflection point came with the appointment of Earl Warren as Chief Justice, an appointment made by the Republican President – Dwight Eisenhower. It was the Warren Court that started the judicial system down the pathway of judicial activism that continues to this day and it was the rulings of this court than began the dramatic shift to the left. Subsequent Republican Presidents have been able to slow this drift but they have not been able to stem the tide toward socialism and left wing activism.

The rule of the majority, the founding principle of the country, has been replaced through judicial activism by the rule of the minority. The Constitution and the Bill of Rights has been stretched by first one judge and then another to include the “right to not be offended” The Freedom of Religion has been distorted to guarantee the right of all minorities to practice their religion (?) while slowly curtailing the right of the Christian majority to practice theirs. The right to not be offended is trampling the Freedom Speech except when that Freedom of Speech is immoral, obscene, anti-American, or anti-Christian. As bad as these things are they still fall within the realm of “correctible”. The real threat to the country comes from the waning power and influence of the Democratic Party and the growing strength of the “progressives” which is the code word for socialists which in turn is code for Marxists.

This dramatic shift to the extreme left began with the founding of Moveon.Org by George Soros, a Hungarian by birth and political activist who claims (with some justification) to have been instrumental in bringing down the communist party in Poland and the governments of Georgia and Czechoslovakia. He has now embarked on a campaign to bring down the government of the United States and to replace it with one more to his liking, which is one where he is the power behind the throne. Clearly he is seeking a role – on a global scale – of Cardinals Richelieu and Mazarin. In effect, Soros is using his vast wealth to fund various organizations that support various politicians, who if elected, will be beholden to and controlled by him. This bevy of politicians under the sway of Soros includes, Clinton, Roberts, Gore, and Obama. The election of anyone of these would give Soros the power he seeks and the ability to redirect the government and the foreign policy of the United States. As a naturalized citizen he cannot be President but as one of the richest men in the world, he clearly intends to be the shadow president.

The Democratic Party abandoned Joe Lieberman because he supported the foreign policy of the government, he viewed Islam as a great threat and the War on Terror as real. Now we see Moveon.Org attacking General Petraeus without any condemnation from the leading candidates, who either dodge the issue or soft pedal it but do not condemn it. Now we see the same organization plus many of the front organizations supported by Hillary Clinton (who is supported by Soros) attempting to shut down talk radio and censor Rush Limbaugh. This blatant attack on free speech is not condemned by Moveon.Org or any of the Presidential candidates, instead they are again either silent or softly supporting the Moveon.Org positions.

The real issue here is the absolute silence from the “official” Democratic Party. Howard Dean – the Chairman of the Democratic Party appears to have been transported to some distant planet because he has not uttered any word about anything in months. In fact the Democratic Party appears to have disappeared entirely and has been replaced by Moveon.Org. The policies of the left are not being formulated and articulated by the Democratic Party, they are being formulated by George Soros and articulated by his mouthpieces – Clinton, Roberts, and Obama. The real Democrats like Dodd, Biden, and even Kennedy are silent while the extremists like Reid, Pelosi, and Murtha spend all of their time attacking the current administration rather than trying to run the country. All of this is signals a decline in the power and influence of the national Democratic Party and this represents a threat to the entire country. Remember, Soros has the objective of overthrowing the government and he intends to install himself as the power behind the President. Unfortunately I think Obama, Roberts, and Clinton think they can control Soros, just like the German politicians thought they could control Hitler.

Socialism Is Love

Hugo Chavez is clearly a closet Marxist but when asked why he was such an avid socialist he summed up socialism by describing it as “love”. “Socialism is Love” is perhaps the best description, in the fewest words, of socialism and communism that I have ever heard. If you consider the motives of many of the outspoken Liberals, Socialists, and even Marxists, you see that what they are seeking is to ensure that everyone shares in the wealth and advantages of society as a whole. Truly a worthwhile objective but then why have these altruistic philosophies failed in practice – or have they failed”

It seems clear today that Communism has failed. Lenin overthrew the Czar in 1917 and purged not just the aristocracy but the capitalists, the business owners, and even the farmers who owned land. Everything was taken over by the state and was to be run for the benefit of everyone. The very foundation of Marxism is expressed in this one phrase:

“From each according to his ability. To each according to his needs.”

This simple phrase indicates that everyone will work to their capacity and give to the state all of their output so the state can redistribute the wealth they generated according to the needs of everyone. In practice this means that if you can generate $100 but only require $10 to support yourself then the state returns $10 to you and distributes the remaining $90 according to the “needs” of others. Of course in practice it seems that members of the Communist Party had more needs than non-members and senior party members had even more needs. Intellectuals, artists, and professionals were generally viewed as parasites because they didn’t produce anything tangible and were treated accordingly.

The stark reality is that the left wing of society closed its collective eyes to the failure of Communism under Lenin and Stalin. The Western Intelligentsia continued to extol the glories of the Worker’s Paradise even when it was obvious that it was nothing short of a crude dictatorship that was systematically murdering thousands of people. This self-deception continued right up to and beyond the fall of the USSR. Castro came to power as a “socialist” whose objective was to overthrow the evil Dictatorship of Bautista with a free and democratic – albeit socialist – government. However, once Bautista was gone, the free and democratic government never materialized, instead Castro declared himself not just a “socialist” but a Marxist. Elections were held but the only party was the Communist Party and the only candidate Fidel. Gone was any semblance of freedom. This same scenario is being played out today in Venezuela by Hugo Chavez who describes himself as a “socialist” while he is rigging elections, nationalizing industries, and wrecking the economy in the his efforts to spread the wealth. Even Chavez himself hints that he is a Marxist, but few people in the media or on the left are willing to call him what he is – a Marxist Dictator cut from the Stalinist cloth.

Every communist regime from Lenin until now has been a disaster economically as well as politically. There has never been a Communist government voted into office and once in control no communist regime has ever been unseated electorally – all have been overthrown by violence. Fortunately few communist regimes remain but those that do are repressive and examples would be North Korea, Viet Nam, and Cuba. Of course many of the fellow travelers would point out that China is “communist” and very successful. However, modern China is no longer a “communist” nation but rather an updated version of Imperial China. The country has adopted many of the trappings of a capitalist society like entrepreneurship, profits, and individuality. Of course there is little freedom of the press, assembly, or speech, but then those things weren’t characteristics of Imperial China either. China has let the capitalist cat out of the bag and they will never be able to put it back, so China will slowly continue its evolution from Communism to Capitalism.

But what of those nations that are truly socialist – countries like France and Sweden? Aren’t they successful? Obviously it depends on how you measure success, but keeping in mind that one of the primary objectives of socialism is employment not profitability or productivity, then the socialist countries of Western Europe do not perform well.

The Gross Domestic Product per capita of France is 26% below that of the US, Sweden is 22%
And Germany is 38% below that of the United States. When viewed in terms of Gross Domestic Product per Employed Person the United States produces $81,024 per person while France produces $63,097, Sweden $63,401, and Germany $59,052 and these are countries where employment is a primary objective and the rationale for government control. But the unemployment rate in the US is at 4.5% while France and Germany have unemployment rates of 9% and Sweden 7%.

The obvious conclusion is that capitalism undoubtedly has greater swings in employment it has greater productivity and wealth generation than any of the socialist countries and ironically less unemployment. So while the socialists and Marxists show their “love” for the poor and downtrodden at the expense of the rich and successful, the overall result is a reduction in overall wealth and greater unemployment, not considering the flight of capital and brains as the more educated and aggressive members of their society flee their loving embrace. One is reminded of George Orwell’s “New Speak” where “Love is Hate”. This certainly seems to apply to Communism and Socialism.

Another Experiment in Socialism Gone Awry

It is truly amazing how the socialists in the world fail to get the message that it doesn’t work. Our Universities and the Educational community in general continue to be filled with these people who feel capitalism is evil and that socialism is the only “fair” way to run a government. Of course it goes unsaid that they should be the ones to run the government because the rest of us are too stupid to make the right decisions. Even in those European countries where socialism is entrenched the best they have been able to achieve is a level of mediocrity, where no one is terribly rich, no one terribly poor, and many who simply give up and live parasitic lives without working. If it wasn’t for the leadership of the United States most of Europe would simply collapse. But that really isn’t the issue. The issue today is Venezuela, a once prosperous country rich in oil revenues but suffering from the usual Latin America malaise of few members in the middle class, too many ignorant and uneducated peasants, and too little reinvestment in the country.

What we find today in Venezuela is Hugo Chavez doing what dictators and communists have done forever and that is promise something for nothing to the masses and then find a scapegoat to blame for the failures that inevitably follow from socialist policies. Since Chavez gained power the economy of Venezuela has slipped into decline and is growing worse day by day. At first glance this deterioration may not be obvious because the streets are filled with vendors hawking their wares and shouting out prices. These vendors are selling virtually everything and from the sheer number it would appear that the economy is in good shape and that the people are prosperous and doing well. But this appearance is deceiving because the supermarkets where one would ordinarily buy vegetables and other staples are virtually bare. But why is this happening when the whole objective of socialism / communism is to share the riches with everyone. The objective is to take from those that have and give to those who have not so why are goods becoming scarce?

Obviously the answer to this question is complicated but it starts with some of the fundamentals of socialism / communism. In capitalism the objective of any enterprise is profit and if the profits are not forthcoming the business goes out of business. In socialism and in Venezuela the Chavez form of Socialism is more nearly akin to communism the objective is employment and any profits from the enterprise are taken by the state and redistributed into other endeavors that are not making a profit. The inevitable result of this policy is that eventually there are no profits being generated by any enterprise. But the more direct impact of government control of the economy is the policy of price control. This failed in ancient Rome and it has failed in every instance where it has been tried and it is failing in Venezuela. As soon as the government fixes the price at which a product can be sold it immediately drives that product out of the marketplace because the product can be sold at a higher price on the black market. Punishment of black marketeers increases the scarcity and drives the prices even higher. In Venezuela the government allows these individual entrepreneurs to exist, which is why the street vendors are selling vegetables on the street but the shelves in the markets are bare.

Regimes like Chavez’s drive away business from outsiders and cause investors internally to flee the country taking their wealth with them. This has historically been the problem in Latin America as one dictator after another seizes power the wealthy move their wealth to other countries and the new regime falters and fails to be replaced by other and the pattern repeats itself. Dictatorships are inherently unstable and eventually fail. Communist states follow the same pattern for much the same reason – any prudent person will not stand by and allow the fruits of his labor to be seized by the government and redistributed to the unproductive.

There is a lesson here for America’s leftists and the extreme positions held by many in the Democratic Party. Raising taxes is simply a legal way of taking the profits from the productive and giving them to the unproductive. This is what Chavez is doing in Venezuela and his strength comes from the unemployed, the disenfranchised, and the poor. The power base of Pelosi and the extreme left increasingly rests on the illegal immigrants, the poor, and the unproductive.

But the real warning is that Hugo Chavez is a “democratically elected” leader who seems to have convinced the American left that he is not only a popularly elected leader but that he represents the future of Latin America. Of course this was the position these same leftists took with Fidel Castro and we see how well that worked but the situation in Venezuela may actually be worse because Chavez like dictators before him is using the US as a scapegoat to distract the people from the evident failures of his regime. This is the same technique being used by Kim Jong Il in North Korea, the Mullahs in Iran, the Islamofascists all over the world, and the list goes on and on. However, unlike the others Chavez appears to be trying to provoke the US into some sort of retaliation or military intervention. The recent capture of the British Soldiers is an example of this attempt to provoke an attack by the Iranians. Chavez needs something similar to consolidate his grip on the country because his seizure of private property and obvious drift toward a fascist communist state is rapidly eroding his power.

The leftists in this country and worldwide continue to view the US as the oppressor of the weak, especially Cuba and other communist countries like North Korea. Chavez is relying on this attitude and the fact that the US is distracted by the Islamofascists, which gives him the opportunity to establish himself as the first Communist in South America. He doesn’t represent a significant problem yet but he is not someone to be ignored for long.

The Decline and Fall of Reason

The State of Michigan is declining in virtually every way and certainly a great many more people are moving out than moving in. The auto industry – as represented by Ford, GM, and Chrysler – is sinking as well. The quality of the schools in appalling and the scores on standardized tests are poor and got even worse after the difficulty of the test was reduced. The state is strongly Democratic, highly taxed, and heavily unionized, but no one seems to connect the dots between these facts and the state of decline. The Reign of Reason seems to be in jeopardy – at least in Michigan, but I suspect it is throughout the US – if Howard (Mad Dog) Dean and Senator John Kerry are any example of what passes for rational thought.

The UAW has virtually built a socialist society with the auto industry so the workers absolutely believe that they are entitled to free healthcare, high salaries, full employment, low skill requirements, and of course as little work as possible. This socialist attitude has been brought into the population as a whole and is propagated by the teachers who are fully unionized. These unionized teachers are highly paid – among some of the highest paid in the country but are demanding more money. Of course they like to compare their salaries on a per annum basis rather than the per diem basis which permits a more realistic comparison. On a per diem basis teachers in Michigan are being paid wages equivalent to Computer Programmers and Engineers. But salary is only part of the problem because these unionized teachers are also strongly oriented to socialism and regularly indoctrinate their students about the virtues of socialism and the evils of capitalism. Not only that they resist any effort to measure their productivity or quality of output. Within the European socialist governments the objective is employment not productivity and this attitude seems to have infected the UAW and the other Unions in the US.

The reality is that Socialism – like Marxism – does not work. It drains the economy, stifles creativity, and certainly curtails capital investment. Europe, especially France, is dominated by Socialist governments, which are staggering under the weight of their welfare programs. In most of these countries there is a large and growing population of the unemployed, some of whom would like to work but a great many more find that they can live well on the government dole. This is a class of parasites that --like all parasites -- is slowly killing the host. These welfare programs have forced the EU to continuously reduce its defense spending to the point that their military capability is seriously impaired. Although they are strongly Anti-American they are totally dependent on the US for their defense. The fact that they can’t connect the dots between their anti-American actions and their own security is simply another illustration of the decline of reason.

But the evidence that not only is critical thinking disappearing but even the decline in rational thought is all about us. Consider science, which from where I sit is not only in decline it is virtually disappearing. The culprit is “Epidemiology” which is literally the study of epidemics, how they spread and their impact on large groups of people. Of course Epidemiology itself is merely the application of statistical analysis of a data sample, which is then projected to the larger group. However, for anyone who has actually used statistics or analyzed data for any purpose the accuracy of any analysis is suspect. When the analysis is based on an a priori assumption any reliability the analysis might have had is now dramatically reduced because only the data that supports the a priori position is considered. This is the basis for the conclusion that everything from Alar to charcoal to tobacco causes cancer. There is absolutely no science behind any of these conclusions, yet the media reports them as fact and the great majority of people accepts the conclusions as true and acts accordingly. Where is the critical thinking or rational thought?

The famous scientist Carl Sagan was accepted by PBS and thus by the public as a true scientist, when in actual fact he was a shameless self-promoter who hounded those with whom he disagreed, especially Immanuel Velikovsky who postulated several theories that were plausible but counter to the popular ideas of the time. Velikovsky has not been proven right or wrong but then neither have the theories supported by Sagan. The fact is that the popular science crowd has stated things as fact when in reality much of what they have said is open to speculation or even downright wrong. The dinosaurs were killed off by a huge meteor that changed the Earths climate was something that Sagan stated as fact when it was a theory -- certainly a plausible theory but a theory nonetheless and not the fact as reported. There is growing evidence that the Earth has indeed been struck by massive meteors but the connection between that event and the disappearance of the dinosaurs is speculative and does not address the issue that every geological epoch has ended with catastrophic mountain building, including the Cretaceous, which spelled the end of the dinosaurs .

Then we have the debacle over DDT, which has been banned from production on the basis of a book written by Rachel Carson titled “Silent Spring”. The fact that Carson was dying of cancer and was personally convinced that pesticides were responsible was never questioned at the time. Instead the usual gaggle of environmentalists – acting on nothing but emotion – succeeded in having DDT banned worldwide. Since that time all of Carson’s assumptions have been disproven but the damage has been done, malaria has once again become the scourge of Africa. . No critical thinking was employed and certainly no empirical evidence was ever offered to support her claims. The reality is that NO ONE knows precisely what causes cancer, but we DO know what causes malaria, which is carried by mosquitoes that are very effectively killed by DDT. The thinking among the environmentalists seems to be that a bird is more precious than a human life. But no one seems willing to question this, which seems to be another illustration that critical thinking and rational thought is in retreat.

Of course the most outrageous position taken by the popular science crowd and academia in general is Evolution. Evolution is a THEORY and with the advance of paleontology, not a very sturdy one. None of the tests stated by Darwin as necessary for proof have been met and current paleontologists think they will never be met. The reality is that the very foundation for Evolution is crumbling and the evidence is piling up that it is probably partially wrong if not totally wrong. In fact Darwin’s book “The Origin of Species” is still taught without any critical examination even though ironically the book doesn’t describe or address the origin of species. No transitional life forms have ever been found and several eminent paleontologists (e.g. Stephen Gould) have stated that none will ever be found. Even the vaunted example of the Eohippus has turned out to be false and the fossil record incorrect. Nevertheless, many scientists, the media, and certainly academia continue to state Evolution as fact, not as a theory, and worse – these people won’t even consider any alternative – more evidence of the death of science and the decline of reason.

Recently the United States has undergone a virtual epidemic of Diabetes. The media and the medical community are all in a dither over this and the usual Nannies are calling for all sorts of government intervention or action to correct this “threat to public health”. The Pharmaceutical companies are cranking out pills by the zillion in order to meet this threat. The reality is that the National Institute of Health lowered the threshold for Diabetes from 200 to 100, which overnight plunged the country into this “health crisis”. Of course the drug companies are cleaning up and no one in the media or in the medical community seems concerned enough to criticize or even investigate the situation. Even if you don't think science and critical thinking are in retreat at the very least you must admit that dot connection is certainly in decline.

Of course this brings us to the issue of Cholesterol and heart disease. The average untreated cholesterol for white males has historically been between 220 and 240 and it continues at that level today. Gradually the National Institute of Health has lowered the bar – first to 180 and now to some where around 100. The only correlation between heart disease and cholesterol has been statistical and no empirical connection has been established. If anything the body may self-regulate cholesterol, but that isn’t the point. The point is that once again as the desired level of Cholesterol drops the number of people taking the cholesterol lowering drugs increases as does the profits of the drug companies. That statistical correlation seems to go unreported and critical thinking doesn’t seem to apply to these health issues. Of course the proponents of these drugs point out that the life span of the average American continues to grow. I suppose the ultimate goal is to prevent cancer and heart disease, the two leading causes of death. Once that is accomplished I guess we will all have to resort to suicide or simply euthanize the old.