The Plot Thickens

What’s the only private business that gives the equivalent of an obscene gesture to forty percent of its potential customers? Hint: it’s also the only private institution mentioned in the Constitution. The answer, of course, is the press, or more specifically, that segment of the press known as the mainstream media or MSM. The MSM is a strange animal in more ways than one, an animal with puzzling behavior.

The MSM consists of ABC, CBS, NBC, and most big city newspapers. The supporting cast includes CNN, MSNBC, and NPR.

If you’re a conservative there have probably been countless times you’ve felt disgusted and infuriated at the bias, double standards, and lack of balance exhibited by the MSM. As a conservative I can’t count the times my mouth has dropped by what I’ve heard said and written in the mainstream media. The bias is dumbfounding.

According to the latest installment of a poll Gallop has conducted since 1992, 41 percent of the respondents self-identified as conservative, 36 percent moderate, and 21 percent liberal.

Another recent Gallup poll reported that “Americans’ confidence in television news is at a new low by one percentage point, with 21% of adults expressing a great deal or quite a lot of confidence in it. This marks a decline from 27% last year and from 46% when Gallup stared tracking confidence in television news in 1993…. Confidence in newspapers is now half of what it was at its peak of 51% in 1979.”

Obviously the MSM is paying a high price for its bias and lack of balance. Scoring only a 21% confidence level is quite an indictment. Obviously they have lost the trust of more than just conservatives. The MSM has squandered its credibility.

By all outward appearances it seems that their compensation is being provided by the Democratic Party. They behave as though their primary loyalty is to the Democratic Party rather than the news organization they ostensibly work for.

The MSM is the only private business that seems all but immune to the profit motive. If they simply treated all of their audience with respect it’s hard to tell how much how much of an increase they would see in their gross and net revenues.

It makes me wonder if they have any explicit or implicit mission statement. For example, is it, “My mission as a journalist is to choose a political candidate and then select and slant what I report so as to help him/her get into office.” Or possibly, “My mission as a journalist/reporter is to show my like-minded colleagues that I’m one of them.” I simply cannot conceive what they perceive their professional responsibilities to be. It apparently never enters their minds.

Economists hate to attribute behavior to irrationality. It’s essentially a cop out. It’s like saying, “I can’t explain the behavior, so I’ll just say it’s irrational.” Therefore, I won’t categorize the MSM behavior as irrational. Let’s just say it’s unusual. They have other priorities and values that are not obvious to the rest of us.

There is a stunning amount of conformity. Does that ever bother them? They behave like a flock of sheep. There seems to be no sense of originality, no desire to be different. They usually report stories with exactly the same slant and often with almost identical wording.

Recently, for example, when reporting on the beginning of the Republican National Convention, several reporters used almost exactly the same words in saying that Hurricane Isaac “was sure to revive memories of Hurricane Katrina.” Obviously, they sure hoped it would. (Hurricane Katrina was, in their minds, a perfect example of the incompetence and insensitivity of George W. Bush’s presidency.) At least the same number of reporters told us how terrible it would look to viewers when they saw a “split screen” with the devastation of the hurricane on one side and the convention festivities on the other.

You have to admire whoever orchestrates their performances. They definitely are all kept on the same sheet of music and sing the same lyrics.

When I write a column, I have absolutely no interest in making the same observations someone else has made or sounding like someone else. Saying what has been said by someone else is a waste of my time and the reader’s. I don’t think that’s an unusual attitude, but the MSM certainly don’t share it.

In most instances the perspective and analysis of the MSM is largely predictable. A central tenet of information theory is there is no information in a predictable statement.

The MSM loathed George W. Bush and adores Barack Obama. They have allowed both of these extreme attitudes to corrupt and distort their reporting.

From the standpoint of a functioning democracy, there is probably no other institution as important as a free press. Unfortunately, those at the highest echelons of the press are guilty of journalistic dereliction of duty. The MSM is grossly abusing the special freedoms, privileges, and responsibilities it’s been granted.

Whether or not you think Barack Obama has been a good president, he would probably not be president if the MSM had come within a country mile of its professional responsibilities. They effectively colluded with the Obama campaign to keep who he is and what he believes hidden from view.

There is no reason to expect the MSM to change its behavior. If anything the bias is increasing as they become more and more desperate. However, their bias is becoming more transparent and media consumers have more choices — Fox News, talk radio, and the Internet, for example. The price they pay for their malpractice is just going to increase.

On the first night of the RNC, Fox News had 44 percent more viewers than NBC, more than twice as many viewers as CBS or ABC, and more than four times as many viewers as either CNN or MSNBC.

The main reason for optimism is that, although powerful, the MSM is not omnipotent. It’s entirely possible that, despite their best efforts, Barack Obama will not be reelected.

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◼ The Plot Thickens September 12, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Obama’s Labor Theory of Value

Beyond being infuriating and insulting, President Obama’s now notorious “you didn’t build that” speech probably left many people puzzled. It is so foreign to how most Americans think they might have wondered where such thinking comes from.

Whether or not you think it’s accurate to call Obama a Marxist, his perspective on how the economy works is Marxian through and through. More specifically, it is a reflection of what’s referred to as Marx’s “labor theory of value.”

That theory is defined in the Dictionary of Economics as “[t]he worth of a product or service is in proportion to the labor employed to generate it.”

Economists not under the spell of Marxism consider the labor theory of value to be a convoluted mess. Marx himself had great difficulty papering over the logical gaps and contradictions of the theory. One obvious problem is that “labor” is not a homogeneous resource. Furthermore, it is not the only scarce resource necessary for the production of practically every product or service.

The question of how relative prices are determined is still a central question in economics. “Price theory” is what comprises most of microeconomics.

Today the mainstream conclusion about what determines relative prices is that they result from the interaction of “supply and demand.” In the context of price theory, supply and demand are like file drawers where numerous factors can be organized and analyzed.

The price of any product is affected by the quantity of all the resources necessary to produce it — labor, energy, land, information, time, for example. Marx’s position was that only one of these resources mattered, i.e., labor. Furthermore, he devoted none of his attention to the demand side of price determination. It’s as though he tried to design a pair of scissors using a single blade and, in fact, only a small piece of a single blade. I don’t think that it’s an exaggeration to say that no economist, other than true-believer Marxists, thinks that the labor theory of value makes any economic sense or is useful in understanding how an economy actually works.

In his classic textbook on the history of economic thought, William Fellner poses the following question about the labor theory of value and offers an explanation:

What function does the theory perform in the Marxian system, and why do contemporary Marxists continue to cling to it? The answer, we suggest, is that a simple and sweeping doctrine of exploitation is the essence of Marxism as a creed, and that it is impossible to obtain a doctrine of exploitation as simple and sweeping as is the Marxian from premises other than the “worker’s right to the whole produce.” Marxism as a creed is founded on the idea that all income going to the owners of wealth results from exploitation. The Marxian creed requires the exploitation doctrine as its foundation. (Emphasis in original.) — William Fellner, Modern Economic Analysis

A belief in the labor theory of value is what explains the hostility toward profits that is so prevalent on the left. If labor is 100 percent responsible for the creation of value, profit is theft. Profits are only possible if labor is exploited and only if capitalists get what’s not rightfully theirs. Likewise, property is theft, as are various forms of capital. Marx is the inventor of the word “capitalism.” His turgid three volume magnum opus is titled Das Kapital.

In countless ways Marxism is an intellectual mess. Theoretically it makes no sense. In practice it has led not to utopia, but to dystopia. The most horrific and repressive regimes in the world today — North Korea, Cuba, and Zimbabwe, for example — are Marxian in theory and practice.

Nevertheless, a Marxian view of the world continues to be popular on the left. Obama’s speech reflects his deeply held belief that business owners do not deserve the share of income and wealth they receive. All value ought to go to the workers. Any other outcome is the result of “the exploitation of humans by humans.” According to Marx, that’s what happens under capitalism and will continue to happen until private property rights are abolished. Only then can true equality be achieved.

It’s important to remember that even bankrupt ideas can be popular over long periods of time. Two other leading examples are Malthusianism and Keynesianism. Their predictions and policy prescriptions have proven wrong countless times, yet as doctrines they still hold wide appeal. Malthus’s Essay on the Principle of Population was published in 1798 and Keynes’ General Theory of Employment, Interest, and Money was published in 1936. The failure of the Democrats’ massive stimulus spending ought to be enough to toss Keynesianism into the dumpster of ideas that sound good but turn out to be disasters when applied to the real world.

Marx fully expected capitalism to collapse within a few years after the publication of The Communist Manifesto in 1848. V. I. Lenin’s Imperialism: The Highest Stage of Capitalism, published in 1916, was essentially an attempt to explain why capitalism still existed. By then Marxists fully expected that capitalism would be long gone.

One thing that J.M. Keynes got right was his understanding of the power of ideology. In the final paragraph of The General Theory he wrote, “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.… Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Whether or not Barack Obama is a Marxist depends on how you define Marxist. Most everyone who acts like a Marxist reacts strongly if called a Marxist. There are probably a hundred Marxists for every one who admits to being one. The birth certificate I would like to see is one that would show where Obama’s ideology was born.

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◼ Obama’s Labor Theory of Value August 13, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Lopez Lomong’s Incredible Odyssey

Running for My Life: One Lost Boy’s Journey from the Killing Fields of Sudan to the Olympic Games By Lopez Lomong with Mark Tabb (Thomas Nelson, 230 pages, $24.99)

Two years ago on a flight from Denver to Des Moines my wife, Jan, had the good fortune of sitting next to a truly remarkable young man. His name is Lopez Lomong and he was on his way to compete in the Drake Relays, one of the premier track and field competitions held annually at Drake University in Des Moines.

Jan was on her way to spend a few days with our daughter who was in her final year of Veterinary School at Iowa State University. When Jan called me that evening she was still feeling the effects of her two hour conversion with Mr. Lomong. She said, “On the plane today I met the most amazing and inspirational person I’ve ever met.”

The remarkable story she heard from Lopez Lomong is now a book titled Running for My Life: One Lost Boy’s Journey from the Killing Fields of Sudan to the Olympic Games. I strongly recommend you read his book and then watch him compete in the London Olympics. He will be running the 5,000 meters for the USA. It will be his second Olympics. At the Beijing Olympics he competed in the 1,500 meter run. His book will have you laughing, crying, and shaking your head in amazement. Lopez Lomong’s odyssey from childhood to the present is a tale for the ages.

His story begins in South Sudan. Sudanese rebels burst into the village’s Sunday worship services and kidnapped all of the children, both girls and boys. All the children were jammed into a truck: “A green canopy covered the top and sides of the truck bed, so I could not see out. Suddenly the tailgate slammed shut and the truck lurched forward. I did not know it at the time, but my childhood had just ended. I was six years old.”

What happened to Lomong has happened to thousands of other children in Africa. They are referred to as “the lost boys.” This is not just man’s inhumanity to man, it is man’s inhumanity to children.

There are many pivotal and improbable moments in Lomong’s story. One is seeing a few minutes of the Atlanta Olympics on a television a few miles from his refugee camp. The event and award ceremony he saw was Michael Johnson winning the 400 meter run during the 1996 Olympics in Atlanta. It was the first time Lomong became aware that running could be a sport. Afterwards Lomong walked back to the refugee camp:

I walked along in the night, staring up at the night sky. The image of Michael Johnson standing on that platform, the letters USA across his chest, weeping openly and without shame, flashed through my head. For a man to react to winning a race in such a manner told me that this had been more than a race. Those letters on his chest and the flag he carried around the track had to be the key. Clearly he was not just running for himself. The gold medal by itself was not enough to bring a real man to tears. No this man, this man with skin like mine, ran for something bigger than himself. That had to be the reason why he wept.… I now had a dream that would change the course of my life: I would be an Olympian.

Moreover, I wanted to run with those same three letters across my chest: USA.

Other than the fact that it came true, his dream was insanely improbable.

Lopez Lomong’s story is a lesson for the rest of us in many ways. This book will give you a new and deeper appreciation for the blessings you have. As a reader comment on Amazon put it, “Read this book and try to feel sorry for yourself.” If your patriotism needs recharging, this book will do it for you. Seeing the world through Lomong’s eyes will change the way you see it through your own. You will not soon forget this book.

It will give you a new appreciation for the importance of family, and not in the narrow sense of the term. Lopez describes numerous times when people around him treated him like family and how he would not have survived and succeeded without them. Lomong now has two sets of loving and devoted parents, an African set and an American set. Lomong has a talent for conveying his feelings and emotions. He is honest and self-effacing. Reading his words will make you feel that you know him well. He has a total lack of bitterness. His optimism and positive attitude are infectious.

At the 2008 Beijing Olympics Lomong was chosen by his teammates to be the flag bearer for the U.S. delegation at the opening ceremonies. Characteristically, he said he didn’t deserve it and tried to decline the honor. His teammates told him he best represented what the Olympics are all about. They didn’t take no for an answer.

The proceeds for his book go to a charity he has established: 4 South Sudan. The four purposes of the foundation are providing clean water, access to education, better farming tools and methods, and basic medicines for people in South Sudan.

God bless you, Lopez Lopepe Lomong, and God speed to you. I hope I have the privilege of meeting you some day.

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◼ Lopez Lomong’s Incredible Odyssey July 26, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Infuriator in Chief

President Obama’s greatest talent seems to be his ability to infuriate his opponents. The latest example is the campaign speech he gave in Roanoke, Virginia last weekend. In that speech he declared, “If you’ve got a business — you didn’t build that. Somebody else made that happen.” The Wall Street Journal opines that, “This burst of ideological candor is already resonating like nothing else Mr. Obama’s said in years.”

Of course, Obama’s explanation of how success happens is absurd, but that’s only part of the story. Also interesting are the motivations and consequences of his remarks. His view is much more than wrong, it is insulting, infuriating, and demeaning to a large portion of the populace.

Obama’s supporters may agree with the views he is expressing. His words may make them more enthusiastic in their support for him, make it more likely they will donate to his campaign, and show up to vote in November.

On the other hand, do those words cost him any votes? Those who are incensed by what he says probably weren’t going to vote for him anyway. When the people who are already angry enough to vote against him get even angrier, are there any consequences? Is he increasing the population of voters who are livid, or is the impact simply redundant?

Coaches tell their professional sports teams to measure their words when talking to sports reporters. They tell them not to say disrespectful things about their upcoming opponents, and not to say something that will end up on their opponents’ locker room bulletin boards. Providing extra motivation for your opponents is never a good idea.

There is a vast difference between Barak Obama’s public persona and his true nature. In other words, his public persona is a fraud. An inherent problem with a fraud is that it is not easy to sustain in the long run. There is a constant tension between the reality and the fraudulent image. An old adage says, “The truth is easy to remember.” The corollary of that is lies are hard to remember. Like bubbles, the truth tends to rise to the surface. What we saw in Roanoke is the real deal Obama. Now and again Obama actually delivers on his promise of transparency.

There is a degree of internal logic to Obama’s world view. In his Roanoke speech he said, “There are a lot of smart people out there — there are a whole bunch of smart people out there.” In other words, there’s no real difference among individuals, therefore, incomes and wealth ought to be equal.

Getting our arms around Barak Obama’s worldview is extremely difficult for those of us who don’t share it. We ask ourselves, how can anyone believe such things? But believe it he does, and the rest of us need to recognize that fact.

Obama is well known for his frequent use of argumentum strawmanium. He makes up grotesque caricatures of his opponents’ policy positions. Included in his Roanoke speech was, “There are some things, like fighting fires, we don’t do on our own. I mean, imagine if everybody had their [sic] own fire service. That would be a hard way to organize fighting fires.” Does he not recognize how insulting and condescending that sounds? Who in the world advocates having his own free-standing fire department? No one is that stupid. It speaks volumes about his opinion of his audience’s intelligence. Being talked down to that way is not a way to win friends and influence people. Obama is incapable of dealing with his opponents’ real arguments, so he describes them in absurd, cartoonish ways. It’s pathetic.

Barak Obama is unquestionably the most divisive U.S. president in modern history. People I never would have suspected have expressed to me an intense resentment and anger about what he has done to the country they love. Two wonderful ladies I know, both age 85, have for the first times in their lives become politically energized. I’m pretty sure neither one of these fine ladies have had this much political anger in all of their lives. I don’t think they are isolated examples. In November we will learn just how many voters share their feelings.

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◼ Infuriator in Chief July 19, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

The Real Damage Done by High Tax Rates

President Obama has once again put the question of income tax rates on center stage. As a Wall Street Journal headline put it, “Obama Intensifies Tax Fight.” He is apparently hell-bent on making our income tax structure more progressive.

Raising tax rates on upper-income earners is an appealing idea to many people. The President certainly hopes that it is. The most common argument against the idea is that it would diminish the incentive for business owners to invest, hire, and grow their businesses. Although that is all too true, it’s only one kind of damage done by high marginal tax rates. Even if we were not in a recession, more tax progressivity would still be a bad idea.

It’s well known that taxes reduce economic effort. If you want less of something, tax it. That, by itself, reduces wealth creation and economic growth. Less well recognized, however, is that high tax rates misdirect and misallocate economic activity.

A flatter, less progressive income tax rate schedule is an idea that never seems to go away. Perhaps the earliest argument for a flat tax was in Milton Friedman’s 1962 classic, Capitalism and Freedom. Its latest sighting is in what’s called the “Ryan Budget” authored by Congressman Paul Ryan. The official name for his budget plan is “The Path to Prosperity: Restoring America’s Promise.” His proposal advocates only two federal personal income tax rates — 10 and 25 percent. A notable and similar recommendation was part of President Obama’s own deficit reduction team of Erskine Bowles and former senator Alan Simpson. Their “National Commission on Fiscal Responsibility and Reform” recommended federal rates of 8, 14, and 23 percent. Obama totally ignored the Bowles-Simpson recommendations.

High marginal tax rates reduce wealth creation in more ways than is immediately obvious. High tax rates not only reduce incentives overall, they also alter and rearrange incentives. Most of the damage done by excessively high tax rates is hidden from view and almost impossible to measure precisely. Although hidden, the damage is real and significant.

Our wealth is as much dependent on how efficiently we use resources as it is on the quantity of resources we have. The worst damage done by high tax rates is the way they distort decisions in the economy and result in a misallocation of resources.

Higher taxes increase the effort expended in avoiding taxes. When you increase the reward for avoidance, you will get more avoidance. It will follow as the night the day. More decisions will be determined by tax considerations. The result is a less productive economy.

Investing is a process of choosing among alternatives. A generalization that is true in most cases is that money and effort go to where they are most rewarded (or more precisely, where there is the best risk-reward ratio). Different rates of returns attract or repel investment capital.

An economy functions most efficiently and experiences the highest possible growth when resources move to their highest-valued uses. That is the natural tendency in a free market economy. High tax rates, however, significantly distort this tendency. Too often resources move not to where they create the highest economic value, but to where they result in the most tax avoidance. High tax rates reduce the reward for productive spending and increase the reward for wasteful spending. If the tax minimizing choice is the most economically productive it’s a happy accident, and a rare one.

High rates make avoiding the tax an option with a very high rate of return. The higher the tax rate the greater the effort expended to avoid them, the greater the misdirection of economic decisions, and the greater the loss to economy and all its participants. High tax rates result in “overinvestment” in tax avoidance. Overinvestment in one activity means reduced investment elsewhere.

High tax rates also reduce the price or “opportunity cost” of leisure. You could define leisure as wealth non-creation. There’s nothing inherently wrong with choosing more leisure, but it does cost something in terms of output. The higher the tax rate, the lower the price of leisure. More leisure means less wealth creation. High tax rates are equivalent to a subsidy for leisure. Is that really something we want to do? Have we made a policy choice that people work too hard?

ONE CLEAR EXAMPLE of taxes distorting economic choices is the tax on capital gains. The capital gains tax is due only when the gains are “realized.” In other words, only when the appreciated asset someone owns is sold. In most cases the choice to sell something is controlled by the owner. The capital gains tax is the closest thing we have to a voluntary tax, at least in regard to timing.

The voluntary characteristic of the tax on capital gains is why such taxes are especially sensitive to changes in rates. Even more than is the case with other taxes, revenue from changes often move contrary to the changes in rates. Capital gains taxes are the easiest tax to avoid or at least to postpone. In the past whenever capital gains taxes have been reduced there is invariably an increase in the turnover rate of investments and, therefore, many more “realized” gains and increased tax revenue.

There are millions of assets people would like to sell but don’t because they do not want to trigger the tax. Among other things, this prevents people from diversifying their investments as much as they would prefer. Many people have most of their wealth concentrated in one or two assets. Diversification is far and away the most effective way to reduce risk. Consequently, the tax on capital gains results in people bearing an undesired amount of risk.

When tax rates are raised there is almost never a proportional increase in government revenue. Why not? To understand why, it helps to remember that ours is mostly a voluntary exchange economy. Although taxes are not voluntary, the economic transactions you enter into are.

Taxpayers in the top brackets have the most flexibility in how they arrange their incomes, where they reside, and how they invest. This week we learned that the billionaire Denise Rich has renounced her U.S. citizenship in order to avoid U.S. income and estate taxes. In May, Facebook co-founder Eduardo Saverin renounced his citizenship for what many consider the same reasons. Now, rather than getting, for example, 35 percent of these peoples’ incomes and estates, our federal and state treasuries will get zero. California and New York, two states with top income tax rates over ten percent, have experienced out-migration of upper income residents in recent years.

A friend of mine is a chemical engineer for a large biotech firm. For several years he spent much of his time in Singapore overseeing the construction of a major new research and production facility there. When I asked him why the decision was made to build it there rather than the U.S., he answered even before I finished my question: “Taxes.”

Over-investment in tax avoidance is magnified in an environment of tax complexity. Every serious proposal for a flatter income tax schedule has also included tax simplification and the elimination of tax loopholes. Lower rates and a broader base — you can’t have one without the other. It was such a combination that was central to the tax reform President Reagan successfully passed in 1986. Reagan reduced the top income tax bracket from 70 percent to 28 percent. What followed was an extended period of robust economic growth.

A flatter tax rate schedule would increase productivity and economic efficiency. We would all be better off, not just “millionaires and billionaires.” President Obama, however, is far more focused on punishing the rich than he is in growing the economy.

Obama wants the top federal tax bracket to increase from 35 percent to 39.6 percent, the capital gains rate to increase from 15 percent to 20 percent, and the estate tax rate to increase from 35 percent to 45 percent. Buried in Obamacare’s 2,500 plus pages is a totally new 3.8 percent tax on all “unearned income,” which includes interest and dividends from investments, income from rental property, and the sale of single family homes. In other words, if Obama gets his way the top marginal rate will increase from 35 percent to 43.4 percent. That would have a poisonous impact on the economy.

Mitt Romney, on the other hand, wants a top income tax rate of 28 percent, the capital gains rate to be zero for incomes below $200,000, complete repeal of the estate tax, and a complete repeal of Obamacare .

The battle lines have been drawn. May lower rates and the economy be the victors!

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◼ The Real Damage Done by High Tax Rates July 13, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Mayor Bloomberg’s Lessons in Liberalism

New York mayor Michael Bloomberg has ignited a minor firestorm by proposing a ban on what he calls “sugary soft drinks” in larger than 16 ounce containers. Even though it’s an asinine idea that will have no tangible impact, it is notable because of what it says about divisions in our political philosophies. This is a learnable moment.

The proposed ban is not just a reflection of “Nanny Bloomberg,” it is a reflection of nanny liberalism. If you think Bloomberg’s proposal makes sense, you’re a liberal.

In Mayor Bloomberg’s view, “We’re not taking away anybody’s right to do things, we’re simply forcing you to understand that you have to make the conscious decision to go from one cup to another cup.” That’s interesting. How can anyone possibly believe that someone can be forced to understand? “You have to make a conscious decision?”

The Mayor admits that he’s applying force but claims that is will not diminish anyone’s freedom. He’s illustrating the mental contortions that are necessary to liberalism.

The Mayor went on to say, “It’s not perfect, it’s not the only answer, it’s not the only cause of people being overweight — but we’ve got to do something. We have an obligation to warn you when things are not good for your health.” Does the government actually have “an obligation to warn you?” Says who? Where did such an obligation come from?

If the government doesn’t warn us about something, does it mean it’s safe? “We’ve got to do something” are five of the most dangerous words in the English language. More often than not the “something” we’re told “we’ve got to do” does far more harm than good.

Bloomberg claims to have our best interests at heart: “I would just like to push that from the consumer point of view and to force the consumer to hopefully move over to the less fattening drinks and everybody will be better off.” To put it mildly, that is debatable.

When conservatives advocate for personal responsibility it isn’t only for philosophical reasons. When you start down the road of idiot-proofing society you should not be surprised when the result is a population explosion of idiots. Idiot-proofing society reduces the cost of idiocy. When you reduce the cost of something you invariably get more of it. The doctrine of caveat emptor (let the buyer beware) is not as callous as liberals think it is.

When the government sends us a message that it is assuming responsibility for our health and safety it’s telling us we don’t have to worry about it ourselves, so we don’t. Individuals have the best information and incentives for making the right decisions, even though they don’t always do so. The question is can the government do better?

Super-sized sugary soft drinks are only one of millions of potentially harmful choices available to us. There is no way the government can warn us and protect us from them all. Our objective should be maximize the amount of responsible behavior. Delegating responsibility to the government is the worst way to accomplish that.

Responsibility is one of those things that has a natural limit of 100 percent. When an entity like the government takes responsibility for a particular problem, peoples’ individual responsibility for that problem is necessarily diminished. Mayor Bloomberg’s assumption of responsibility for his citizens’ weight issues effectively takes them off the hook, at least in part. His presumably well-intentioned policy is training people to be irresponsible. That, in a nutshell, is the problem.

Another way to frame the issue is that it is about where in our society we are going to locate responsibility — at the center (government) or at the periphery (individuals). In other words, is responsibility going to be centralized or decentralized? An inseparable question related to that choice is do we want to depend on force or freedom?

Like liberals generally, the mayor is tone deaf when the issue is freedom. Freedom is well down their list of priorities and they assume that ought to be true for everyone. They always seem surprised when people bristle about being told what kinds of light bulbs or the maximum size of the toilet tanks they can buy. In their view society and the planet simply cannot afford to let individuals exercise their freedom. To paraphrase Jack Nicholson’s Colonel Nathan Jessup role in A Few Good Men: “You want the freedom? You can’t handle the freedom!”

To pilfer a phrase from Barack Obama, “Yes, we can.”

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◼ Mayor Bloomberg’s Lessons in Liberalism June 12, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Speculators and Manipulators

Other than killing Osama bin Laden, President Obama seems incapable of taking responsibility for anything. Blaming speculators is the latest iteration in his ongoing crusade to escape responsibility and to change the subject. He has added speculators to a long list that includes George Bush, insurance companies, greedy physicians, big oil companies, “fair share” fugitives, and Republicans in Congress. He should change his name to Barack Oblama.

Obama’s specific charge is that speculators are the reason for rising gasoline prices. Robert Reich, who for some unknown reason claims to be an economist, says that “speculation by U.S. index fund traders has been raising prices by up to $1 per gallon.”

Speculation can mean many things and take many forms. Basically, it is the attempt to profit from price changes.

Confusion about the role and impact of speculation has been common and recurring throughout history. Take, for example, the accusation that speculators artificially increase the price of the commodity in question.

It’s true, of course, that speculators can contribute to an increase in the market price of something by adding to the demand for it. What’s important to keep in mind, however, is that’s only half the picture. A speculator cannot make a profit by simply buying something. There’s no profit in hoarding. There has to be a round trip of both buying and selling. The main objective is to buy at one price, and then to sell at a higher price.

The impact of buying pushes prices up, the impact of selling pushes prices down. There is absolutely no reason to assume that speculators permanently increase the price of anything.

Speculation can benefit the economy in a number of ways, one of which is to allocate resources between time periods. An economy, like everything else, exists in time and space. The value and usefulness of something can be increased by changing the time and/or location it’s made available to users.

The supply of no commodity is constant over time. Prices tend to be low when supply is abundant and high when it’s not. The supply of corn is highest right after harvest time. If all of that corn were dumped on the market at the same time the price would be extremely low. The incentive to use it efficiently would be weak. Months later we could expect a shortage of corn and the price would spike. Speculators anticipate this dynamic. They buy when the supply is abundant and the price low, pushing up the price, and sell when the supply is low, pushing down the price. The net result is that both market prices and available supply are moderated.

Speculators, as such, are not philanthropists. They don’t wake up in the morning asking themselves, “How can I benefit humanity by stabilizing prices and supply over time?” Their actions are motivated by self-interest and profits. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” The societal and economic value of speculators is not as obvious as for butchers, brewers, and bakers, but it can be every bit as real.

The information and incentives provided by the price system are crucial to the efficiency of how and when resources are employed. Speculation helps short-term prices conform to long-term realities. The economy functions best when we don’t allow temporary abundance to give false signals about what will be true in the long run.

Speculation is one of the factors that lead to what economists call “price efficiency,” meaning prices that reflect all available information. Such information includes expectations about future conditions. For example, if a stock’s price is expected to be higher tomorrow, it will be higher today.

Speculators assume the risk other economic players would rather avoid. A farmer can sell his crop even before he plants it. The farmer essentially transfers the risk (uncertainty) of price fluctuations to someone else. He can focus his efforts on farming and not worry about the vicissitudes of the market.

Speculators usually face intense competition with other speculators. The current price will be bid up until the anticipated profit is roughly equal to the average of other investment alternatives. At a minimum, the expected price change has to cover the costs of storage if they are to make a profit. Furthermore, speculators are not assured a profit. When their predictions are wrong, they lose.

Blaming speculation for high prices reflects the rawest kind of economic ignorance. I couldn’t begin to count the number of times I have been stunned by the utter lack of economic understanding demonstrated by Barack Obama.

Obama and his ilk are willingly and deliberately ignorant of economics and economic realities. Economics is an annoying impediment to their utopian belief system and their political objectives. Obama doesn’t understand how a market economy works, and doesn’t want to know. If he could he would criminalize the free market. He is as clueless as the worst economics student I ever taught, even at the beginning of the class. Obama never lets ignorance slow him down and we all suffer as a result.

Regulations against market “manipulation” already exist and are enforced by the Commodity Futures Trading Commission. President Obama has recommended increasing fines tenfold to a maximum of $10 million per violation, as well as more enforcement funding for the CFTC. According to the Wall Street Journal, “In the past 35 years, the CFTC has brought dozens of cases of manipulation in energy markets. It was successful in proving only one in court.” Besides prohibitions on manipulation, the regulations also prohibit “recklessness” and the creation of prices that are “artificial” (in contrast to being determined by supply and demand). The CFTC has the all but impossible task of proving that one firm has the ability to affect prices on the multi-billion-dollar commodities markets. No wonder the agency has such an atrocious track record.

More regulations and more bureaucracy will not stop imaginary problems that are impossible to define or enforce. They may help Barack Obama distract attention from his disastrous first term, but otherwise they are a counterproductive waste of time and resources.

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◼ Speculators and Manipulators May 3, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.