Robert Reich recycles Karl Marx

The production of too many useful things results in too many useless people.

Karl Marx from his Third Manuscript Private Property and Labor

Robert Reich is worried about WhatsApp, because Venture Capitalists (a.k.a. Facebook) paid them a lot of money, however, WhatsApp doesn’t employ a lot of people:

Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.

It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.

The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.

Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)

Robert Reich is making a straw man argument by holding up a single flashy, headline grabbing example of Venture Capitalist acquisition, and drawing the conclusion that we’re all doomed and there are no more jobs. While WhatsApp is grabbing all the headlines and getting the massive payday, there are literally thousands of other small start-up’s scrapping to become the next Facebook, Google, WhatsApp and Instagram. Some are well funded and others aren’t, but theses thousands of startups are employing tens of thousands of highly skilled people, contributing to the growth of our economy.

Of course this fact doesn’t fit the leftist narrative:

But we’re not getting more jobs.

In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).

Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.

I know I’m beginning to sound like a broken record but I’ll say it anyway, government jobs like postal workers do not add to our economy. Reich continues:

Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.

Our economy, our way of life is doomed unless we (a.k.a. the government) needs to do take from one group and give it to another. Typical leftist thinking.

It’s odd that we keep hearing from Reich and his ilk that the creative destruction happening in our economy is a harbinger of doom while in the real world, employers can’t hire enough skilled trades and STEM professionals.

Again, the truth doesn’t fit the left’s narrative.

Lefty columnist on ObamaCare: “The cost is comparable to what I kicked in for a employer-provided plan”

After over half a billion dollars sent to Canada for coding, it’s good seeing that the ObamaCare web site is actually working.  According to lefty columnist Susan J. Demas @ MLive the ObamaCare web site works great:

I’m not the most tech-savvy person in the world, as my husband will readily attest. One of his projects today is helping me dump pictures from my phone to laptop.

So although I’m on record for appreciating many of the benefits of Obamacare — requiring coverage of prenatal and pregnancy care, preexisting conditions and mental health — I expected problems signing up.

After all, it’s easy to stumble across stories of people complaining about higher prices and assorted online glitches. It’s been a public relations disaster for President Obama’s administration, which has had to hire new firm to handle the site after Feb. 28.

But my experience on was anything but a horror story.

Great, she was able to click your way through the web site. What did our lefty columnist purchase on the shiny new website?

The site turned out to be as easy to use as Amazon. There were no error screens to be found.

I was able to shop for insurance like I do for flights. The plans and details were all listed with the monthly premium in big, bold type — no muss, no fuss.

And I was pleasantly surprised by the cost. I found a gold plan (the second-highest level) for my family with a low deductible for less than half of similar plans I priced out before the Obamacare exchange started up.

The cost is comparable to what I kicked in for a employer-provided plan — and the coverage is far better.

I know my private sector employer kicks in a lot more than I do for my health insurance, so it’s reasonable to assume that millions of taxpayers (like me) are kicking in a hefty chunk for people like Ms. Demas health insurance.

I think a “thank you” to the American taxpayer is in order.

Intern Industrial Complex: Millennials can’t find paying jobs in “meaningful” vocations such as “Record Executive”

Wow, where to begin:

Like other 20-somethings seeking a career foothold, Andrew Lang, a graduate of Penn State, took an internship at an upstart Beverly Hills production company at age 29 as a way of breaking into movie production. It didn’t pay, but he hoped the exposure would open doors.

When that internship proved to be a dead end, Mr. Lang went to work at a second production company, again as an unpaid intern. When that went nowhere, he left for another, doing whatever was asked, like delivering bottles of wine to 27 offices before Christmas. But that company, too, could not afford to hire him, even part time.

A year later, Mr. Lang is on his fourth internship, this time for a company that produces reality TV shows. While this internship at least pays him (he makes $10 an hour, with few perks), Mr. Lang feels no closer to a real job and worries about being an intern forever. “No one hires interns,” said Mr. Lang, who sees himself as part of a “revolving class of people” who can’t break free of the intern cycle. “Is this any way to live?”

I don’t know, spending a fortune at Penn State studying ‘entertainment’ and our intrepid intern wonders why he can’t find a job?

I’ll admit I have no experience in the world of entertainment, but I would expect the only way to break into the entertainment field is either knowing the right person or you are insanely talented and know someone. Obtaining a sheepskin from Penn State isn’t going to introduce you to the right person or suddenly make you insanely talented.

The NYT sob story continues:

 The intern glass ceiling isn’t limited to Hollywood. Tenneh Ogbemudia, 23, who aspires to be a record executive, has had four internships at various New York media companies, including Source magazine and Universal Music Group.

“In any given month, I’d say I apply to at least 300 full-time jobs,” she said, noting these attempts were to no avail. “On the other hand, I can apply to one or two internship positions a month and get a call back from both.”

Call them members of the permanent intern underclass: educated members of the millennial generation who are locked out of the traditional career ladder and are having to settle for two, three and sometimes more internships after graduating college, all with no end in sight.

Again, you need to know the right person, or be insanely talented and know the right person. Or you need to be a connected entrepreneur and start your own record label:

In 1944 brothers Nesuhi and Ahmet Ertegun elected to remain in the USA when their mother and sister returned to Turkey, following the death of their father Munir Ertegun, who had been the first Turkish Ambassador to the United States. The brothers had become ardent fans of jazz and rhythm & blues music, amassing a collection of over 15,000 78rpm records.[4] Ahmet ostensibly stayed on in Washington to undertake post-graduate music studies at Georgetown University but immersed himself in the Washington music scene and decided to enter the record business, then enjoying a resurgence after wartime restrictions on the shellac used in manufacture.[5] He convinced the family dentist, Dr Vahdi Sabit, to invest $10,000 and recruited Herb Abramson, a dentistry student. Abramson had worked as a part-time A&R manager/producer for the jazz label National Records, signing Big Joe Turner and Billy Eckstine, and then founded Jubilee Records, but had no interest in its most successful artists and subsequently sold his share in Jubilee, investing $2500 in the new Atlantic label.

Yep, a kid with a wild dream became an entrepreneur and used his connections to get his vision off the ground. Granted this is very rare, especially in the entertainment world.

The Times tale of woe continues:

That may explain why millennials like Breanne Thomas, 24, an aspiring entrepreneur in Brooklyn, has bounced from internship to internship. Unlike her parents’ generation, it is not enough to find a steady job; she wants to follow the path of Mark Zuckerberg, or at least to get in on the ground floor of the next Facebook, the next Twitter.

“ ‘Success’ doesn’t always mean financial success, but doing something you’re passionate about,” said Ms. Thomas, who graduated with two bachelor’s degrees from the University of Oregon in 2012. “It’s kind of my goal one day to have my own company, to be part of something that is going to do something great. That’s why I’m in tech.”

That kind of ambition comes with a price, however. Competition for salaried high-tech jobs is fierce, so Ms. Thomas has had to settle for internships: three, so far, including at a five-person food-delivery start-up, a beauty products site and, currently, a well-known social-networking app that she asked not to name.

Tech isn’t just working at the next startup trying to emulate Twitter or Facebook. If our tech intern is decent software engineer, what about working in a more traditional industry? Manufacturers are always looking for engineers to develop embedded software.

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Sure, you won’t be able to ride your scooter wearing a ironic t-shirt at Ford Motor Co’s Product Development Center. However, what you will have is a good paying, interesting and steady career.

Income Equality: A and B decide what C shall do for D…Except that they take a little bit of a commission off on the way

Born of a commitment to remedy the economic and moral defects of capitalism, it has far surpassed capitalism in both economic malfunction and moral cruelty. Yet the idea and the ideal of socialism linger on. Whether socialism in some form will eventually return as a major organizing force in human affairs is unknown, but no one can accurately appraise its prospects who has not taken into account the dramatic story of its rise and fall.

Library of Economics and Liberty

While perusing YouTube looking for a Milton Fridman video to wrap up the MCT “Creative Destruction” post, I ran across this video that looks to be from the very late 70′s or early 1980′s. Friedman ‘debates’ (although it is not much of a debate) a young idealist worried about income inequality:

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Fast forward almost 40 years, and the left is still whining about the same thing, namely income inequality:

New York City Mayor Bill de Blasio used his first State of the City address Monday to press government to marshal its power to battle income inequality, a liberal call to action that will be closely watched around the nation.

By virtue of a campaign focused on income disparity and landslide win that installed him at the helm of the nation’s largest city, de Blasio has become a leading spokesman for a growing movement to narrow the gap between the haves and have-nots.

He promises to help by hiking taxes on the rich to pay for prekindergarten, raising the minimum wage and providing ID cards for people in the country illegally.

“We’re fighting to give everyone a fair shot,” he said Monday during the speech at a community college, “so that city government doesn’t set its priorities by the needs of those at the very top … while ignoring the struggle of those born under a less lucky star.”

And how does Mr. Socialist Mayor plan to remedy the situation for those born under a less lucky star? Taxing the snot out of the ‘wealthy’

The first Democrat to deliver the address in more than 20 years, de Blasio unveiled a decidedly left-leaning agenda. His signature issue, to which he devoted the climax of his speech, was to again call for a tax hike on New Yorkers making more than $500,000 a year to pay for universal prekindergarten.

“Many wealthy New Yorkers … know that a gilded city isn’t the New York they signed up for, even if they currently find themselves doing quite well,” de Blasio said. “Raising taxes on the rich makes our commitment to our kids more than just words.”

Democrat / Socialist… Same thing.

What is interesting is what Fridman said at the end of the video clip at the beginning of the post:

You can only aim at equality, by giving some people the right to take things from others. And what ultimately happens when you aim at equality, is that A and B decide what C shall do for D…except that they take a little bit of a commission off on the way.”

So true.

Rise of the Machines: Innovation leads to gales of “creative destruction”

Economic progress, in capitalist society, means turmoil.

Joseph A. Schumpeter

My favorite economics writer, Timmy, has an excellent post discussing The Rise of The Machines and how robots are going to take everyone’s job at The ASI. He takes down a leftist argument that capital and IP(?) needs a heavy tax taxing and redistribution to provide for the workers who will become displaced by the coming wave of automation. Timmy has several reasons why this likely to happen:

2) Does anyone at all really believe that the robots are all going to end up being owned by one class of people? In this age of open source stuff? Is this what’s happening with 3D printing? Of course it damn well isn’t: people are pottering about in sheds with these technologies. As soon as we do have robots that make robots (the necessary stage for them to take all our jobs) there will be designs for such robots that you can make at home. We’ll all be robot owners and why would we want to tax the snot out of ourselves?

3) The assumption is that capital will become more productive in a robot world. That’s why we’ll have to tax the snot out of capital. And capital will indeed become more productive: which is why its value will fall. Yes, you read that right. When something becomes more productive this is equivalent to stating that we’ve made more of it. Thus more productive capital means we have more capital and the price of something that becomes in greater supply falls, not rises.

4) The last time we mechanised a significant area of life was probably farming back in the 1920s and 30s. Agriculture become significantly more productive. What happened to the price of land? Yup, it sank like a stone and the farmers have been on the public teat ever since.

When you boil it all down, this is what is called creative destruction:

Innovation by the entrepreneur, argued Schumpeter, leads to gales of “creative destruction” as innovations cause old inventories, ideas, technologies, skills, and equipment to become obsolete. The question is not “how capitalism administers existing structures, … [but] how it creates and destroys them.” This creative destruction, he believed, causes continuous progress and improves the standards of living for everyone.

And in the long run, as is pointed out by the brilliant Milton Friedman below, everyone benefits.

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That about sums it up.

Conservative opinion leader misses the boat when it comes to Michigan’s budget surplus

Dan, Dan, Dan…

The usually reliable Dan Calabrese really misses the boat when it comes to Michigan’s recent budget surplus. Via the DetNews politics blog:

I remain convinced, as I wrote some weeks back, that it doesn’t make sense to enact a permanent cut in the state income tax rate because of one budget surplus — especially a relatively modest one like the one Michigan projects for 2014, which will be a few million short of $1 billion.

Um… If the government has a ‘surplus’ that means we the taxpayers were OVERTAXED and the money needs to be put back taxpayers wallets.

Noble Prize winning economists, and champion of personal freedom, Milton Friedman described tax cuts this way:

I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.

Milton Friedman

Friedman understood the only way to rein our ever expanding government is cutting the flow of money into it. Now that our State government has a surplus, albeit a small one, this is the time for conservatives, who espouse the virtues of a limited and much smaller government, to demand a tax cut.

If the State happens to look like its going to have a budget shortfall in a year or two, then it will be time for another round of budget cuts.

Furthermore, conservatives shouldn’t fall for the “we need to fix our roads” and “we need more money for schools” meme either. Schools get more than enough money, and truth be told, they need to learn how to do more with less, just like everyone else. As far as the roads go, why throw good money after bad? Why give even more money to the people responsible for our awful roads in the first place. Again, people in Lansing need to figure out how to do more with less.

Benefits Street: A look at the type of ‘social prison’ the American left is trying to create here

As has been said over and over here at MCT, if you want to know what our future here in America holds, look at Europe. The American left is strangely enamoured with all things European: Socialized medicine (a disaster), green energy (failing) and a cradle to grave welfare state (another disaster).

As we here in the U.S. head down the European path, there are small signs that at least some people in the U.K. are slowly opening their eyes to the fact their generous social welfare system is an abysmal failure, is a recent, television series called benefits Street. The show (the most watch T.V. show in Britain) is described as follows:

Those expecting ‘poverty porn’ would be baffled: it is a fly-on-the-wall documentary shot in James Turner Street in Birmingham, where most occupants of the 99 houses are on welfare. Its characters speak for themselves. As quickly becomes clear, they are overwhelmingly kind, neighbourly and surprisingly upbeat, given that they are, in effect, inmates in a social prison.

The story continues and describes life in the ‘social prison’ constructed by the welfare state:

Life in this prison is pretty shocking. We see 14 Romanian workers crammed into one house expecting to be paid decent salaries, only to find they have been conned and the gangmaster will pay them each only £10 a day. (The immigrants seem routinely appalled by the other residents of James Turner Street, stunned that the British could be asked to live in such a way). We see a young woman visiting the bank machine at the stroke of midnight, when her welfare payment is processed, then immediately buying booze. We see a small boy, Gerard, hanging out with drug addicts as they drink on the street. ‘He knows way too much for a five-year-old,’ says ‘White Dee’, his mother. ‘What is there for him? Destined to grow up and be part of a gang? Because that’s society, isn’t it?’ Around there, it is.

The Spectator (U.K.) breaks down the math keeping people in government sponsored poverty:

The biggest scandal of Benefits Street, which Channel 4 is unlikely to reveal, is that White Dee is behaving rationally in deciding not to work. This is not something ministers like to divulge, but Policy in Practice, a welfare and employment consultancy, has run the figures for The Spectator. Dee is a single mother with two young children. Were she to earn, say, £90 a week as a cleaner, then the system would reduce her benefits by £70 — an effective tax rate of 78 per cent on that £90 she’s earned. She’d thus be slaving away all week for £20 — far less than the minimum wage.

It doesn’t get too much better higher up the scale. If she landed a £23,000-a-year job, her effective tax rate would still be 74 per cent – so she’d end up just £5,975 a year better-off than if she’d spent the year sitting on the sofa watching daytime TV and chatting to her pals on the street. If she then worked extra hours, or earned a pay rise, she’d keep a pitiful 9p in every extra pound paid. This is nothing to do with indolence. Which of us would work at a 91 per cent tax rate?

Sound familiar? Does this sound liberating? This is the scam Democrats in washington are peddling through the nonsense that freedom from work is liberating.

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I think the term the social prison is more fitting. Here’s a trailer for Benefits Street:

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Too bad our lap-dog networks here in the U.S. don’t have the nerve to create a show critical of the liberal agenda.

Detroit small business closes, cites government bureaucracy, regulations and corporate welfare

Businesses fail all the time, it’s the painful part of capitalism. That being said, small business shouldn’t have the deck stacked against them by the government.

The ‘Ye Olde Butcher Shoppe’ in Midtown Detroit (the growth area in Detroit) failed after being in business for 18 months. The main reason the small business failed is due to competition from big box retailer Whole Food Market and Meijer moving into their area which, by the way, took a whole lot of corporate welfare to make happen.

Via MCT (6/5/2013):

15 years to build a grocery store. Not only 15 years, it also took a whole lot of corporate welfare as well:

Despite the store’s prominent neighbors, it took a lot of heavy lifting to complete the deal. The $12.9 million Whole Foods store was financed with $6.1 million in equity from Ram and Whole Foods. Ram contributed 1.9 acres of land for the store valued at about $1 million, said Peter Cummings, chairman of Ram. The remaining $5.8 million came from state and local grants and the sale of tax credits tied to the project.

Whole Foods should send Michigan taxpayers a big thank-you note.

Even though Whole Foods moved into their neighborhood (with a ton of corporate welfare) our hard working entrepreneurs cite several additional reasons for going under that are worth reviewing:

 “There is no doubt that when (Whole Foods) opened, our sales dropped by 60% and have remained close to that ever since,” the brothers said in statement posted Saturday on the store’s website. “We knew when they announced their store in Detroit that we would have to evolve quickly once they opened.

We were close to acquiring a package liquor license and wanted to expand the craft beer and fine wine which really found a loyal audience,” the statement said. “We designed the store to be a one-stop food and beverage destination but that would take time and money, and with our high labor, leasehold, and utility costs, we couldn’t survive long enough to make the necessary changes and additions.”

“From the beginning, we supported the Whole Foods project because we believed that in the end, the city would need that just as much as our store. No city thrives with one dimensional retail. But in short term it did eliminate our chance. We were also a bit blindsided by the lower pricing structure Whole Foods was able to put in place at the Midtown store.

The State of Michigan bureaucracy slowed the entrepreneurs from obtaining a package liquor licence. Also, the State of Michigan established a Renewable Energy Standard that’s responsible for driving up electrical costs and lastly, the minimum wage law that drives up labor costs.

I wonder workers at Ye Olde Butcher Shoppe would take a temporary pay cut to something less than minimum wage in order to keep their jobs in the long term? Not that the owners of the Butcher Shoppe could make that offer, it’s against the law.

Detroit opinion leader makes erroneous comparison between business and government

Daniel Howes, Detroit News columnist recently published a rambling column discussing the parallels of the Detroit Automakers comeback (as illustrated by their Super Bowl ads) and the city of Detroit and its potential comeback. The column was fairly innocuous stuff until these two paragraphs:

Yes, I know the convenient dodge from those who would prefer to avoid the obvious parallels between running an automaker into the ground and running a municipal government into the ground: government is not a business.

Wrong. Both succeed and fail on the strength (or weakness) of managing reality, dollars and cents, not some mythical ideal that exists only in gauzy memory or an eighth-grade civics class. Neither business nor government can allow expenses to consistently outstrip revenue for too long, cannot charge customers or taxpayers more and deliver less, without inviting serious existential consequences.

So many things wrong with the above paragraphs.

Starting with the most fundamental flaw: business adds value by producing something (a product or service) and creates wealth, government can only take wealth (through the force of law) from one group of people and give it to another, adding no value and creating no wealth.

A car company will invest staggering amounts of money to design, engineer, tool and assemble an automobile. Then the company will spend even more money to market and sell the automobile. This process creates something of value to consumers who purchase the automobile (hopefully) a profit creating wealth throughout the process. Government on the other hand, taxes money from companies and individuals and give it to another group of people who build roads (North Korea has fantastic roads and little wealth), pay government workers or give the money to other individuals in the form of direct payments with no value added or wealth created in the economy.

When Mr. Howes says “Neither business nor government can allow expenses to consistently outstrip revenue for too long” he is obviously forgetting the eight years of economic mismanagement of one Jennifer Granholm and her billion dollar deficits. I won’t even bring up the multi trillion-dollar debt our humble civil servants in Washington D.C. keep adding to at a furious rate.

Economic mismanagement brings up another important point. When business spends more than it takes in, or delivers substandard service the quickly business folds, shareholders lose money and in extreme cases the people responsible for the mismanagement go to jail.

When a politician is responsible for mismanagement rarely are the ever held responsible. The normal track for politicians, particularly liberal Democrats, they are promoted a higher office.

Government is nothing like a business.

Why economic growth is a good thing

One thing missing from political discussions in Washington is the concept of economic growth. Why economic growth is important is, growth makes everyone’s life better.

Take it away  Dr Madsen Pirie, President of the Adam Smith Institute:

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It is so true that average people today live like the wealthy did in the 1950′s. If you go back 200 years, you get this, via Cato:

In Sunday’s Washington Post, Jonathan Yardley reviews Flyover Lives, a family memoir by Diane Johnson. She found diaries from some of her Midwestern ancestors, and Yardley notes what they tell us:

It must be just about impossible for a denizen of middle-class 21st-century America to imagine the toil and suffering that Catharine Martin [born 1800] and her counterparts underwent every day: living in crude houses — mere huts when they first settled in Illinois and elsewhere — slaving at open fires to prepare food for their families, and worst of all watching children fall ill and having nothing in their powers to help them: “Within a year of her marriage, with the fated fertility of women then, Catharine had her first baby, and named her Catharine Anne, after herself. They called her Sissie. This baby was followed by Charlotte Augusta in 1830 and Martha Olivia in 1831. When they were one, three, and five years old, all three little girls died in the space of a week or two.” Catharine herself was ill but survived to write many years later: “When I got up, my house was empty, three little prattlers all gone, not one left.”

Economic growth, not Federally mandated minimum wage, crony capitalism, central planning made these amazing leaps in standard of living happen.