What’s next for Apple?

With Jobs out as CEO at Apple, does anyone expect Apple to do anything more than release standard updates of iPods, iPhones and iPads?

I expect Apple’s products 10 years from now will look a lot like they do today–with standard, industry driven updates–and the company will have a bigger bureaucracy.

But, I could be wrong.  It would be nice if I am wrong.

I don’t know much about Jobs.  Like most of us, he seems to have his failings, quirks and weaknesses.  Most people call him a great designer.  I think of his talent differently.  He seems to have a knack for identifying problems so subtle that few people even knew they existed and drawing on unconventional sources and creativity to solve them.  Then again, maybe that’s exactly what a great designer is.

Ron Paul is not an isolationist

Rarely do I defend politicians.  I’m not sure this is a defense.

It’s more of a correction, or maybe clarification on one distinction between conservative and libertarian thinking.

I’ve often heard Ron Paul’s “foreign policy” referred to by conservatives as “isolationist“.   My local conservative talk show hosts are guilty of this charge.  I’ve heard Dennis Miller do it repeatedly — even though he often interviews Ron and Rand Paul on his show and each time Miller calls Paul an isolationist, they correct him.

I’ve heard that exchange now three or four times in the past year, with the latest being Miller’s interview with Rand just before the Iowa debates (I believe it was around August 10, available on iTunes).  I listened to it today.

Miller said:

He’s a little isolationist for me, but on everything else he makes a lot of sense.

Rand Paul replied:

The foreign policy isn’t isolationism, it’s just that we should not go to war without declaring it formally, you know, like the Constitution intended.

I’ve also heard Ron tell Miller that he is not isolationist.  He said he support individuals trading with other individuals in other countries.  He just doesn’t think we ought to use our military beyond what it was meant to do — defend us.

I’m waiting for Miller to stop the flow of the show for a minute or two and ask one of them, Okay, maybe I have it wrong.  Can you explain to me how it is that you are not isolationist?  I’m not sure that has occurred to him to do that yet.  I’m also not sure it has occurred to Miller that perhaps he doesn’t know what isolationism is.

I’ve heard others do it. (Full disclosure: I might have done it a few years ago).

I think part of it is the conservative way to discount Paul and distance themselves from appearing to agree with a fringe candidate (we had this same struggle with identity when we went from liberal to conservative).

I think another part of it is, like Miller, conservatives don’t know what isolationism is and they haven’t thought much about when we should use our military and what the Constitution says about that.

Miller, and other conservatives, would do themselves a big favor if they read a blog post from George Mason University economist Don Boudreaux entitled, A Conflict of Visions Different than the one Sowell Identified, from March of this year.    The post is a copy of a letter Boudreaux sent to the Washington Post in response to George Will’s Column, Is it America’s duty to intervene wherever regime change is needed?

Here are Boudreaux’s key paragraphs:

Most modern “liberals” believe that domestic economic problems are caused chiefly by unsavory characters – “business people” – who impose their destructive rule on masses of innocent workers and consumers yearning for more prosperity, and that the best solution to these problems is government force deployed using armies of regulators to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.  These same “liberals,” though, believe that foreign problems are typically the result of complex forces that can be understood only poorly by American-government officials; it is naïve to suppose that even well-intentioned foreign intervention by Uncle Sam will not have regrettable unintended consequences.

Most modern conservatives believe that domestic economic problems are typically the result of complex forces that can be understood only poorly by government officials; it is naïve to suppose that even well-intentioned economic intervention by Uncle Sam will not have regrettable unintended consequences.  These same conservatives, though, believe that problems in foreign countries are caused chiefly by unsavory characters – “dictators” or “tyrants” – who impose their destructive rule on masses of innocent people yearning for more democracy, and that the best solution to these problems is government force deployed with armies of soldiers to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.

The my-s**t-don’t-stink crisis

In his book, The Secret Knowledge, David Mamet gives a brief and apt explanation of the economic term moral hazard, which played a key role in causing the financial crisis.

This is from a footnote on page 187 (emphasis added):

Is it not evident that any organization believing itself to be “too big to fail,” will more likely, indeed, inevitably make disastrous decisions? Why should it not–it is Too Big to Fail.

We all know people who (and perhaps have experienced this of ourselves), at one time or another, began to believe that their own s**t did not stink.  And we all know how that story ended.  Not well.

Our last financial crises could be called the my-s**t-don’t-stink crisis.

Also, we should remember how those stories end whenever our “experts”, politicians and economists tell us that such-and-such an industry or company is too important and cannot be allowed to fail (though it usually already has, and few people recognize it yet).

Litmus test: Morality of law

Cover of "The Law"

Can the eye on the cover see the unseen?

In his latest column, Walter Williams quotes French economist/philosopher Frederic Bastiat.   Bastiat provided a great litmus test for judging the morality of a law and government action:

See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Bastiat added in his book The Law:

When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law.

People do not know what capitalism is

Even though the video has made its rounds on other blogs, I had to post it here because I think it’s really good.  I credit Speedmaster at The Pretense of Knowledge for directing me to it.

It’s called Top 3 Common Myths of Capitalism from Jeff Miron of Harvard.

Myth 1: Being pro-capitalism is the same as being pro-business.

Miron says:

The point of capitalism is to make sure that businesses have to be compete vigorously against each other.  That benefits consumers.

It’s not good for the businesses, per se, because they have to work really hard.  Many businesses understand this and they hate capitalism.  They’re constantly trying to get government erect various rules, restrictions, regulations that help them, but they are not in the interest of the consumers [though they will say otherwise].

I believe one cause of this myth is that many people don’t fundamentally know what capitalism is.

Just this morning I heard radio DJs criticizing capitalism.  Yet, they were really criticizing disingenuous commercialization.  On that I agree with them.  That bugs me too.  Other things bug me.  Whiny millionaire football players, cheesy car salesmen and endless customer service touch tone menus are not my faves.  But these aren’t capitalism either.

These have emerged from capitalism.  So have many other things.  Things that I like and love and have made my life better than my ancestors and even better than my younger days.  On net, we all come out far ahead.

And, I know that I can turn the channel when it shows whiny football players, I can find a professional car salesmen and I’ve noticed those phone menus getting better.

I also noticed that those DJs didn’t criticize their advertisers.

Another cause of Myth 1 is that few people differentiate between profits earned by capitalism, through competition, and those earned by rent-seeking or politics.

We need to get better at asking if the profit came from providing valuable products that people voluntarily buy or rent-seeking or politics?

For example, sugar tariffs increase the price consumers pay for sugar and results in a higher profit for domestic sugar companies.  Those higher profits are passed to domestic sugar companies directly from consumers.  Those sugar companies should thank their friends in government.  They do.

Without the tariff, sugar and things made of sugar, would cost less and we would spend our savings on something else that could make our lives even better and create more jobs.  That’s rent-seeking.  It’s anti-capitalist and anti-consumer.  But is viewed by most folks as capitalism itself.

Myth 2:  Capitalism results in an unfair distribution of income.

Miron explains that capitalism rewards people based on what they contribute and produce and admits that a downside to capitalism…

…is that some people have very little skill.  They are not able to earn very much, left on their own.  Some reasonable people support anti-poverty spending, but that’s completely different than interfering with capitalism–regulating prices, limiting quantities, etc — those make the economy less productive, give us a smaller pie and makes it harder for us to operate programs that help those who are less fortunate.

I’d add that the anti-poverty spending does not have to be (nor is it an enumerated power) conducted by the Federal government.

Myth 3:  Capitalism was responsible for the recent financial crisis and recession.

Miron explains that we didn’t have unbridled capitalism in housing prior to the meltdown.

We had enormous government interventions — subsidized risk, encouraged over investment in housing.  If one is going to draw a conclusion, it seems to suggest much more clearly that interfering with capitalism generates financial crises…

…because what happened was a result of the market distortions created by government interference.

This goes back to causes of Myth 1, primarily that people do not know what capitalism is.  People see private, for-profit companies operating in the housing and mortgage industry and stop there assuming that’s capitalism.

They don’t understand that those private companies — and private individuals — were responding to incentives distorted by government.

Consider Speedmaster’s example.  If we believe owning a Porsche cause folks to become well-off (which it doesn’t), then government will do things (distort incentives) to make it easier for people to buy Porshes.

Government can tell banks to not worry about lending on Porsches, because if anything happens, the government will help out.  Government sends subsidies to Porsche to encourage them to produce more cars (though they don’t have the capacity to keep up with demand caused by the incentives distorted by government).

Porsche prices rise from the increasing demand.  People buy more because it seems like, even if you can’t afford one, you can sell it two or three months later for a profit.  Why buy just one?  Buy two, maybe three.

It’s not hard to imagine what happens next.  First, few will have achieved success by simply becoming a Porsche owners.  The original thinking was flawed.

Second, prices rise well beyond normal, capitalism-driven, prices for awhile as everybody gets one or two.

Then they look around and wonder, who’s going to buy my Porsche?  Everyone seems to have one of their own now (which also makes it uncool).  They realize they can’t afford to keep it (plus it’s suddenly uncool), so they panic and rush to sell it before anyone else realizes what’s going on.  Supply skyrockets relative to demand.  Prices collapse.  Everyone says this was capitalism’s last hurrah and governments pays off loans with taxpayers money and becomes the proud owner of millions of Porsches.

Affordable Porsches

I’ve been looking for a good example to illustrate the poor cause-and-effect thinking that led politicians to push for home ownership by lowering lending standards.  In this post, I pointed out:

They [politicians] thought that home ownership led to responsible behavior.  In reality, responsible behavior leads to home ownership.

Fellow blogger, Speedmaster at The Pretense of Knowledge, provides an excellent analogy to illustrate this:

It would be like noting that nearly everyone with a Porsche was very well-off, then deciding that buying everyone a Porsche with taxpayer money would make us successful.

Good points for Buffett to consider

Thanks to W.E. Heasley of The Last Embassy for providing a link to this article from the American Enterprise Institute’s magazine, The American.  The article is titled, Obama’s Folly: Why Taxing the Rich is No Solution.

I enjoyed this article because it’s a good example of a well-argued position.  The authors do a fine job of properly characterizing their opponents’ argument that the wealthy should pay more taxes. They don’t resort to inaccurate straw men.  We could make much progress with debate in this country if more people could do this. That would be a great course to add to our public education curriculum–how to accurately characterize your opponent’s position.

The authors also provide many valid points for their opposition to consider and none of it is about coddling the rich.

Their examination of the numbers should be sobering to the tax the rich folks:

According to the New York Times, the president’s plan to abolish the Bush tax cuts for those making more than $250,000 is expected to bring in merely $0.7 trillion over the next decade, or about 0.4 percent of Gross Domestic Product per year. As a comparison, the Congressional Budget Office estimates that the deficit over the same period is going to be $13 trillion, more than 6 percent of GDP per year.

If this is accurate, then it alone should end the debate.  Focusing so much attention on taxing the rich brings to mind the old saying to be penny wise but pound foolish.

Next, the authors address what has become a popular argument put forth by a member of President Obama’s advisory board, Laura Tyson, and published in The New York Times:

The most common fallacy repeated by Tyson is that taxes do not matter because the economy was booming during the Clinton years even though taxes went up.

They go on to point out that the 90s had other economic events as well — NAFTA, welfare reform and the Internet boom — to name a few.

I’ll add that in 1997 significant reductions were made in the capital gains tax rates for assets held more than one year (source), so not all tax rates for the wealthy increased.  I’ll also add that much of the increase in tax revenue in the last part of the 90s came from capital gains taxes.

The authors correctly point out:

Instead of picking one historic event that happens to fit your preferred theory, a more reasonable approach is to investigate all historical periods where taxes increased or decreased.

This has been done by former Obama advisor Christina Romer and her husband David Romer. They also take into account the causes of tax increases.1 They find that tax increases tend to reduce economic growth, stating that “tax increases appear to have a very large, sustained, and highly significant negative impact on output,” as “an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent.” Similar results have been obtained by Harvard economist Alberto Alesina using a different methodology.2

I don’t trust studies like that of the Romers.  However, their finding is not surprising.  It’s called incentive effects and believe it or not, they exist.  Believe it or not, you respond to them everyday of your life, whether you realize it or not.

But other people put more stock into statistical studies.  Many of those people also think we should raise taxes on the rich.  So, the Romers’ studies and the other economic events of the 90s should at least give those people something to consider.

I also appreciate the authors’ encouragement to look at more than one data point on which to draw our conclusions. That’s great advice.  When someone does that, or when you do it yourself, your skepticism should rise.

Here’s why.  Do you think it would be tough to find one data that says the opposite?  I doubt it.

I appreciate actual experience over conjecture.  But to focus on a single time period and neglect other important factors (like the reduction in capital gains tax rates) is not good practice.

Who is Gary Johnson?

Former Governor of New Mexico, Gary Johnson, provides an example of what I prefer to hear from politicians.

Regarding the high rate of job creation in New Mexico while he was governor, Johnson said:

I didn’t create a single job.

We are proud of this distinction. We had a 11.6 percent job growth that occurred during our two terms in office. But the headlines that accompanied that report – referring to governors, including me, as ‘job creators’ – were just wrong.

The fact is, I can unequivocally say that I did not create a single job while I was governor

…we kept government in check, the budget balanced, and the path to growth clear of unnecessary regulatory obstacles.
My priority was to get government out of the way, keep it out of the way, and allow hard-working New Mexicans, entrepreneurs and businesses to fulfill their potential.
That’s how government can encourage job growth, and that’s what government needs to do today.

I wish more people preferred to hear this from their elected officials.

Stop coddling our elected officials

In The Wall Street Journal today, Former American Express Chairman Harvey Golub expressed his disagreement with Buffett’s desire to increase taxes on him and many others less well off than himself.

Golub makes several points worth considering.  Here’s one point that is usually glossed over in this debate (emphasis added):

Almost half of all filers pay no income taxes at all. Clearly they earn less and should pay less. But they should pay something and have a stake in our government spending their money too.

It sets up a bad incentive structure when some voters pay no income tax.  It costs them nothing (directly, and they may benefit directly) to vote for politicians who grow government.  The bad incentive structure is illustrated well by the old cliche, it’s like two wolves and pig voting to decide what’s for dinner.  Having more voters pay something for government with their hard earned dollars might cause more voters to hold politicians accountable for spending their money wisely.

Golub also questions how wisely elected officials spend our money.  Decades ago Milton Friedman pointed out that we spend money least carefully when we spend other peoples’ money on other people.  That is government spending.

Golub asks questions that are rarely asked in the mainstream:

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task [because of Milton Friedman's observation]. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

Galub ends on this note:

Before you “ask” for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you’ll need less of my money.


The Constitution was meant to protect us

David Mamet’s The Secret Knowledge: The Dismantling of American Culture came up in my queue at the library.  It’s good to have a talented writer on the side of freedom and recognize deeply that is the side he is on, now.

Early, on page 8, Mamet explains the primary motivation of the U.S. Constitution:

As I began reading and thinking about politics, I saw, to my horror, how easily people could also assemble themselves into a mob, which would either attract or be called into being by those who profited from the surrender of reason and liberty–and that these people are called politicians.  My question, then, was, as we cannot live without Government, how must we deal with those who will be inclined to abuse it–the politicians and their manipulators?  The answer to that question, I realized, was attempted in the U.S. Constitution–a document based not upon the philosophic assumption that people are basically good, but on the tragic confession of the opposite view.

It took some time after learning about the Constitution in my publicly provided education for me to understand its true purpose.  I crossed the border to Mexico once early in my life and wondered why the standard of living–separated only by a few hundred feet–could be so different.

I eventually came to realize that the answer was deeply embedded in American culture and embodied in the purpose of the Constitution–to prevent a person, or groups of people, from gaining too much political power over the rest of us.  It was an insurance policy against tyranny.

Too bad we forgot that (though we seem to be relearning it as groups of people use government to extend their reach into our lives).