Posted by on June 6, 2016

President Obama has been in full-bore legacy mode lately.

He took a trip to Hiroshima, adding to his list of presidential firsts.  After much speculation, he decided to skip being the first president to apologize for the dropping of atomic bombs on Hiroshima and Nagasaki.  This was a good decision.

There is much to and fro about whether dropping two or even one bomb was justified, or whether something like a demonstration would have been sufficient to wake Emperor Hirohito from his slumbers.[1]  I don’t know the answer to that question, and since history does not allow the running of counterfactuals, I don’t think anyone will ever truly know.

But we can be pretty confident of some things.    I know that, if Japan had not surrendered when it did and had instead forced an invasion of the country, the consequences for America and Japan would have been far worse: a multiple of the number of deaths, both military and civilian, along with the invasion and likely partition of Japan by the Russians. [2]  I also know that the Japanese government had proven itself absolutely delusional and self-destructive throughout the war; among other things, a rational opponent would have surrendered when it became clear that Germany had lost, thereby assuring Japan’s defeat.  I also know that the US government was trying to negotiate a surrender with Japan until the very end, with the Japanese insisting on things like keeping Manchuria, the equivalent of allowing a defeated Germany to retain Poland and Ukraine.  Finally, I also know that the threshold of deliberately targeting civilians had been long since passed by all the combatants in the war, with Japan almost certainly the first to do so with the “Rape of Nanking” in China in 1937.  Put all of these things together and the case for no apology is pretty water tight, I would say.

Obama then turned to the heartland for a speech on his economic legacy in Elkhart, Illinois.  Did I say that the Japanese government had been delusional and self-destructive?  Not to be outdone, Obama proposed to expand the Ponzi scheme known as Social Security just when it is becoming increasingly obvious that the supply of new suckers is dwindling.  In his words:

And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned.

Given that our entitlement system currently has at least $80 trillion of unfunded liabilities that the government would be forced to recognize if it applied the same accounting standards to itself that the SEC requires companies to use, some might question the wisdom of this proposal.  And given that that the typical Social Security retiree gets back a multiple of his contributions, not to mention the purely non-contributory payments to surviving widows and children, some might also question the use of the word “earned.”

There is no one better to do this questioning than David Stockman, whose time as the head of the Office of Management and Budget has scarred him for life with a complete understanding of the federal government’s accounting shenanigans.   His epic takedown of this proposal – entitled “Obama’s Latest Whopper – Let’s Raise Social Security Benefits” – is a must read.

More Legalized Extortion

If you think that government regulations and our out-of-control legal system are conspiring to crush small business, then “Frequent filers” from The Economist will make your blood boil.

The article describes how the Americans with Disabilities Act (ADA) has become a gold mine for plaintiff’s attorneys.  It appears that it is practically impossible to fully comply with the detailed rule book the ADA has spawned; one Phoenix-based lawyer estimates that 95% of the businesses in Arizona are in violation.  There are accessibility consultants that can advise businesses on compliance, but these are too pricey for small firms.

The government has decided not to enforce the law itself, but rather to create civil liabilities for failures to comply and then allow plaintiff’s attorneys to have at it. [3]Entrepreneurial parasites in the legal profession have taken up the cause: some law firms file up to two dozen lawsuits a week and another one cited in the article has filed 500 lawsuits in total.  Defenceless small businesses usually settle out of court for $3,500 to $7,500 (or $15,000 to $20,000 in California, where the state legislation “awards a disabled plaintiff up to $4,000 for each time he or she visited, or wished to visit, an offending business.”)

Not content with only crippling small businesses with a physical presence, the government is now turning to cyberspace.  Websites will have to comply with the screen-reading software used by blind people and the Department of Justice is supporting a lawsuit by the National Association of the Deaf against Harvard for not subtitling videos it has posted – for free – on the web.  Jeez, I wonder what Harvard’s reaction will be if they are found guilty?  Take the free content down, ya’ think?

Consultants can also provide advice on making websites readily accessible.  The cost?  About $50,000 for a website with 100 pages.

The Economic Innovation Group, a bi-partisan advocacy group for entrepreneurship founded by Sean Parker of Facebook fame, has recently reported that fewer new businesses were formed in the last five years than in any period since 1980.  Moreover, half of these businesses were formed in only 20 counties in America, down from over 125 counties in the early 1990s.  These twenty are clustered around large cities, predominately on the coasts, which are not coincidentally markets big enough to support the heavy fixed costs of regulatory compliance.

Private sector advances – such as cloud computing, low-cost or free website creation and maintenance tools, cheaper harder, new payment systems, incubators, serviced offices, faster and cheaper internet and telecommunications services, new financing options, etc. – are making it easier and cheaper to start small businesses.  At the same time, the government is doing its best to make it harder and more expensive.[3]  At least in flyover country, it appears that the government is winning.

Cuba

The Economist reports that Cuba’s government is legalizing small and medium-sized enterprises, following on from earlier reforms which allowed “self-employed” (or, I guess that would be “self-exploited” in Marxist terms) Cubans to own restaurants, bed-and-breakfasts and other small businesses.  Another socialist economic system crawling into the dustbin of history.

Brexit

I have written that “there is no economic argument for Brexit,” but having recently viewed some excellent Leave propaganda, I realize that I should have been more specific.

The propaganda can be found here.  The first video is very long (over an hour) but well-made if you have the time.  The second video is short (a little over 6 minutes) and certainly worth watching, if only to show why English politics are so much more entertaining than the American variety: here the politicians actually know how to speak.

A major fallacy of the pro-leave camp is on display in the long video.  It compares EU-member England to non-EU-member Switzerland and in essence says, mirabile dictu, that all England has to do to become as free, prosperous and democratic as Switzerland is to leave the EU.  Which is, of course, total nonsense.  As I often point out to my pro-Leave English friends, America suffers from all the sins they attribute to Brussels – too much and too stupid regulation; a tone-deaf, condescending and self-serving political elite; lack of accountability, democratic or otherwise; crony capitalism; excess taxation and absurd government expenditures; etc. – and yet it is not a member of the EU.  By history and inclination, Americans are also more inclined to free-markets and minimal government than the English are.  So, why should they imagine that leaving the EU is a necessary and sufficient condition for the 21st century equivalent of repealing the Corn Laws?

The Economist has picked up on this theme in a recent article entitled “Yes, we have no straight bananas – Brexiteers carp at European Union red tape, but how much of it would they tear up?”  Among other things, the article points out that Britain sides with the majority in 87% of the EU votes.

So, let me make my earlier statement more precise: Within the limits of what I believe to be politically achievable, there is no economic argument for Brexit.  On the other hand, if Brexit could somehow precipitate a free-market revolution in England, then I am all for it.  But I am not holding my breath.

The Wall Street Journal

Well, I finally made the Journal.  It is a sad commentary, however, that after numerous submissions of more substantive pieces, this is the one they chose to run.  The others are apparently too demanding of their readership.

Trump: It Just Keeps Getting Better

There was a school of thought that, after having secured the nomination, Trump would settle down and become more presidential in order to broaden his appeal.  This ignores the fact that Trump, in the defining characteristic of a mentally ill person, is helpless to control his behavior even when it runs contrary to his interests.

The problems with Trump University (TU) are not going away, despite Trump’s attempts to dismiss them as the vindictive efforts of the Indiana-born “Mexican” judge who is a “hater of Trump.”  Trump is more and more like Silvio Berlusconi every day.

It is clear that TU was a scam predicated on a foolish population’s misguided belief that just because Trump was on a TV show, he is actually a great businessman and investor.  Have these people never heard of “acting”?

Among other things, it is clear that TU engaged in false advertising when it claimed that Trump would be “actively involved” in the program, designing the curriculum and choosing the teaching staff (many of whom were manifestly unqualified).  In reality, Trump had no involvement other than slapping his name on the school and getting paid a fee for it.  This is the usual Trump business model, which has more in common with Kim Kardashian than Sam Zell[4].

As usual, Trump is totally evasive and deceptive on this issue.  He repeatedly says that he could “settle” the lawsuit any time he wants.  I am sure that this is true: if he paid back all the tuition fees that were the proceeds of the scam, I am sure the plaintiffs would settle.  I fail to see how this exonerates him, but Trump knows that there are not many legal scholars in his voting base.  The pity is that journalists are also not smart enough to ask the question.

USA Today has an article which claims that, on the basis of a review of court documents, Trump and his companies have been involved in at least 3,500 lawsuits over the past 30 years.  This figure is greatly inflated – it includes, for example, approximately 1,600 cases where Trump casinos are suing to recover gambling debts and 700 “slip and fall” personal injury claims – but even after adjusting for this, the number is staggering.  (As a point of reference, in my 30-year business career, I was involved in exactly one lawsuit.)  This speaks to two things.  First, Trump has probably sailed very close to the wind when it comes to business practices.  Second, he has almost certainly done so incompetently.  Generally speaking, you don’t end up in court if you are sufficiently professional and rigorous to leave your opponents with little hope of victory.

There is a tension in the Trump business model.  On the one hand, he wants to be paid for lending his “brand” for marketing purposes.  On the other hand, he doesn’t want to do any of the real work and he doesn’t want the legal liability associated with any real involvement.  This sometimes produces absurdities.  For example, when questioned about the advertising material for a failed condominium in Florida, Trump testified that “Well, the word ‘developing,’ it doesn’t mean that we’re the developers.”  I said that Trump reminds me of Silvio Berlusconi, but in this case he is clearly channeling Bill Clinton.

Finally, there is the question of his donations to veterans’ organizations after the fundraiser he held when petulantly skipping one of the Fox News debates.[5]  Although Trump did his best to obscure the timeline in his press conference on this issue, it is clear that Trump claimed credit for this well in advance of actual performance.  He also leaves the strong impression that, absent hounding from the press, he may have never performed.  His behavior during the press conference is also deeply disturbing, lashing out at the press and then repeating variations on the same phrase about ten times.  Like my earlier comment after watching a Trump speech, it is impossible to watch something like this and not conclude that Trump is a few fries short of a Happy Meal.

Meanwhile, the debate in the Republican Party between the #NeverTrump and the #NeverClinton camp rages.  Charles Murray has waded in with “Why ‘Hillary Is Even Worse’ Doesn’t Cut It” in the National Review.  This is worth a read.  He actually draws his summary from David Brooks, who wrote these words:

Donald Trump is epically unprepared to be president. He has no realistic policies, no advisers, no capacity to learn. His vast narcissism makes him a closed fortress. He doesn’t know what he doesn’t know and he’s uninterested in finding out. He insults the office Abraham Lincoln once occupied by running for it with less preparation than most of us would undertake to buy a sofa. . . . He is a childish man running for a job that requires maturity. He is an insecure boasting little boy whose desires were somehow arrested at age 12.

He also quotes P.J. O’Rourke’s very succinct comparison between Trump and Clinton: “She’s wrong about absolutely everything.  But she’s wrong within normal parameters.”

The major political parties have served up a shit sandwich to the American voting public.  Let’s hope that they pay a big price for this.

On The Lighter Side

The recently released (at least in the UK) film The Nice Guys is great.  Starring Ryan Gosling and an immensely fat, but commendably gravel-voiced, Russell Crowe, this is a private detective story with a quirky difference.  Don’t pay attention to the unintelligible plot, but just enjoy the writing and the deadpan acting.  Also enjoy Anjourie Rice, playing Ryan’s precocious 13-year old daughter with great effect, another welcome example of the thespian invasion from Down Under.  The movie reminded me of Kiss Kiss Bang Bang, which is on my list of all-time great schlock movies – high praise indeed.

Roger Barris

Weybridge, United Kingdom

I Wish That I Had Said That (And Sometimes Not)…

“It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so,” by Mark Twain

“We’ve got fresh baguettes, and all the meat sauces.  We’ll hold out to the very end,” by a French striker, while cooking a sausage on the picket line, as quoted in The Economist

 

[1] If you are interested in this subject, I heartily recommend The Making of The Atomic Bomb by Richard Rhodes, which won a Pulitzer Prize.  This is a fascinating story of the physics, mathematics, technology, economics, politics and personalities surrounding the atomic bomb efforts of all the major combatants, starting with 19th century physics and ending with an analysis of the consequences and morality of the Hiroshima and Nagasaki bombings.  Not overly technical and extremely well written.

[2] We must remember that Japan badly defeated Russia in 1904-1905, the first time a Western nation had been defeated by an Asian one.  (Although I question whether Russia has ever really qualified as “Western.”)  Japan and Russia also had a number of border battles in the 1930s after Japan occupied Manchuria.  The Red Army would not have been gentle with the Japanese, particularly after it was allowed to rape and plunder in defeated Germany.

[3] One interesting observation, for example, is that Dodd-Frank has heaped disproportionate costs on small community banks, the traditional funders of small businesses, and that this has contributed to the fall of entrepreneurship.  See, for example, this article.

[4] For those who don’t know, Sam Zell is what only Trump pretends to be: a self-made, very astute and multi-billionaire real estate investor.

[5] I have often wondered why Fox News did not put an extra podium on the stage with a cardboard figure of Trump behind it, his right hand and index finger raised in the moronic pose he strikes whenever he thinks that he is making a telling point.  That would have been real justice.
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Comments

  1. Hans van der weide
    June 7, 2016

    Leave a Reply

    Dear Roger,

    Just a short reaction on the Brexit, it is not only about economics, its about freedom to organise your own little area of land, get out of the EU dictatorship! If the people of England have the courage to get out of the EU, hopefully France ( Frexit) and Netherlands(Nexit) and more will follow, and the people who freed Europe in the second world war didn’t die for nothing.
    And yes, to become as Switzerland is a far reach, but at least the Brexit is a first step in this direction!

    • Roger
      June 7, 2016

      Leave a Reply

      Hi Hans:

      Yes, I agree that there is more to the Brexit decision than just the economic questions, although I think that it is mostly about economics. The other issues are really immigration (where I am very convinced that England benefits from immigrants coming from other European countries) and an occasional decision by the European Court of Justice (which are usually very, very bad, but I don’t think that they have a huge overall impact). In any event, I was reacting to the video, which put forward a case pretty much entirely on the basis of economics.

      But let me be clear, if England were not already in the EU and therefore facing the problems of “path dependency,” then I would definitely say “stay out!” (as I did in my blog posting in Switzerland (http://www.economicmanblog.com/2012/11/29/venez-a-londres-mes-amis/)). However, given how little I think the English would, in practice, change, I don’t think it is worth it to incur the huge disruption that would result from a “Leave” vote. I could also be persuaded if I thought that the EU was going to get materially worse, which I think is entirely possible AND IS A VERY GOOD ARGUMENT FOR FREXIT AND NEXIT. But I think that the English are largely insolated from this by their very smart decisions to stay out of the Eurozone and Schengen.

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