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January 15, 2015

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LOTS OF CONFUSING INFORMATION: There is a lot of very confusing information coming out. The President certainly did not help us with his speech. Layoffs all around and good/bad earnings reports. Next week I'll make some comments on it all.

Hi Al, Let me make a couple quick comments and then get into next week to comment further:

1. First there are not really many "rich" people who actually got there working. Most rich people got there from inheritance over 200 years of transfer of family wealth; being specially endowed people such as superstar actors, entertainers and athletes; and lucky. Such as gold on their land, land in places other people wanted, inventions, and marriage to rich people. Most of the rest were made in early entry into businesses that were on the first wave of industrial revolutions such as the steam engine, automobiles, rail roads, aviation, steel production, real estate developers in pioneer areas, war equipment producers (WWII, Korea, Vietnam, etc), mobile phones, social media, computers, medicines, and so forth. And, politicians.

2. Some of the rest of us try like hell to get there by getting into position to get lucky by working, trying out for American Idol or buying lottery tickets. For me, I start new businesses and hope I hit a fast growing market. I started a new one yesterday.

3. For the most part the rest of the population sets moderate goals for a good life and tries to stay steady moving forward.

4. Finally there is a set of people who think things aren't fair. They work to find a way to get things they need by exploiting the system. That would include a lot of politicians who exploit the voting system by promising people things in exchange for their votes. It also includes those who believe the rich do not deserve their wealth and should share it with them. They elect playing field levelers who then force government to take care of their people.

I'll leave it there. Have a wonderful weekend. And, try to guess where I am going with this :)

Great Post, Bill McCormick, Maybe you can comment on the following?

Standing back, I see several causes for the dilemma: (1) Unduly high expectations, (2) Ever increasing government consumption of resources
(3) The political allure of claiming that government is the cure for every conceivable ill, and (4) the inevitable “friction” (waste) of money, whereby government consumes an ever increasing percentage of national resources.
As to (1), it the nature of our consumer economy to create an ever-higher perception of what one “needs”. When we grew up,success was defined as 1 car & TV/household and maybe a party phone line. That standard now is perceived as defining extreme poverty. Heck, the government even gives free cell phones to unemployed people so that they can communicate with potential employers.
As to (2), the tax load continues to go up. Hidden taxes, like those in The Affordable Care Act, are best for politicians because the public does not comprehend what is happening. Strangely, most tax increases are “regressive” in nature, while most politicians mouth rhetoric about “the rich not paying their fair share”. This falls into the category of kabuki politics, per Bill Bowen’s post two weeks ago.
As to (3), it is not politic to say that individuals are responsible for their own state of affairs. Much more politically rewarding to advocate and vote for “free” programs that will deliver more “stuff” to the voters. This is a bipartisan effort. George W. Bush gave us “free” Part D prescription drugs. Barack Obama gave us expanded Medicaid (and hidden taxes) to expand medical coverage for some (but not all) voters lacking medical insurance, and now wants to give “free” community college to all. [Not a surprise—he promised such during his first presidential campaign] The Labor Department now provides permanent “Disability” payments to most anyone who asks.
As to (4), the numbers on the government payroll, directly or through contracts, continuously expands. Rarely contracts, as in private industry, because there are no pressures for efficiency. Zero based budgeting, sunset programs, and line-item veto powers are very unpopular with the governing class. Compound the problem with the ever increasing “awarding” of goodies to those politically connected or well represented by lobbyists. So, the producing class provides an ever increasing percentage of their income to support government expansion and waste. While monetizing the debt has (luckily) worked so far, it is doubtful that continued borrowing at a rate higher than expansion of the GDP will have a happy ending. Symptomatic of the problem is the Media’s blind acceptance of recent claims by Barack Obama, Elizabeth Warren, and Hillary Clinton that the Government, not industry, creates jobs.

We probably can look to Europe and Japan as illustrating where we are headed unless/until points such as these are openly debated and addressed by the political and governing classes.

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