Warning Noted Re Germany’s Recent Election

William Gibson of the WSJ wrote on Sept 26th in the  WSJ (see The Populist Wave Reaches Germany) an Opinion piece that neatly calls out the major issues now liberated in the recent general election that apparently awarded Chancellor Angela Merkel another four years in office. Mr. Gibson goes beneath the headlines to highlight what are actually disturbing issues.

The news that masks the issues suggest that the share of the popular vote won by the ruling coalition dropped from two thirds in 2013 to just over half. So far, ok. But as a result of declining popularity of the classic parties, the center-left Social Democrats have announced they will not participate in the next government. This is where issues emerge.

To creat a coalition this means Angela Markel has to work with either the Greens and the Free Democrats, or she and her party lead a minority government that limps along one parliamentary vote at a time, aligning with any party that works with her decision at the time. The bad news is the Greens are demanding the phase out of the internal combustion engine; the Free Democrats are skeptical of an ‘ever deeper’ EU. Their leader wants to phase out the European Stability Mechanism. All told its a deal with the devil or devils.

If that was not enough, there was a 7.9-point gain by the Alternative for Germany, or AfD, a far-right populist party. The AfD is incredibly the third largest party in Germany, and second largest in the old East Germany. This is more than incredible; this is significant and could be a sign of great and growing dissatisfaction. We all need to keep on guard. This situation can easily and quickly, and quietly, shift further.


Is Warren Buffett Really That Bad?

I read with interest the Economics piece on Wednesday this week by the FT’s Robin Hardin titled, “How Buffett broke American capitalism“.  It was wrong on so many levels and I figured was a slam on one who many hold up as a scion of industry.

First Mr. Hardin praises Mr. Buffett and reminds us of his business acumen- creating wealth out of situations where it does not appear to exist. But then he suggests that Mr. Buffett has a dark side: Buffett seeks to “avoid competition and minimize capital investment in the real economy”. This is a description of darkness, it seems. What does it mean?

The author refers to the growing set of work that suggests out US economy is operating with diminished competition. At the same time corporate profits are running at near all-time highs and capital investment is running at historically low levels. These are all reasonable well known ‘facts’ but are they connected to what Buffett is doing, or is what Buffett doing causing any of these? Does Buffettism have a dark side?

Apparently price mark-ups are increasing over the years and as such contributes to growing margins and so profits. During the recent period capital investment is down- if you have read my blogs regarding the abysmal performance of US productivity (even IT-based productivity) you would know this. Mr. Hardin says hear conditions are central to the success of Mr. Buffett.

Apparently folksy Buffett seeks to ‘widen the moat’ which is code for looking for businesses that have little competition or driving business to do things to distance themselves from their competition. This is not darkness; it is sensible. What the article author is conflating is what is happening in the industry. Mr. Buffett has about the same number of large competitors. What our economy lacks significantly is the turn over in smaller and midsize firms they drive creative destruction and reallocate assets to efficient uses. Yes, there is a lack of completion and innovation from small start-ups. Than Uncle Sam and the federal government and excess regulation and ineffective tax systems for that. Buffett is not dark- left and right leaning politicians are the issue here.

The the article takes another turn. Apparently Mr. Buffett tends to take out all the cash of his acquisitions and jack up the prices. This leads to increased profits and lower capital investment. Go ask any CIO or CFO or treasurer about why firms spend money on capital investment. This is not about economics, it is about financial management. Money seeks money. More money seeks higher returns. If you have not noticed two factors are at play here:

  • Near zero interest rates, even negative interest rates
  • Massive quantities easing whereby trillions of dollars (and Euros) are seeking yield in low-yield market

So CFOs and CEOs have gorged themselves in cheap debt to help increase stock buy-backs to drive EPS (to meet bonus targets) which is quite rational if ‘dark’. The choice was an unproven or unaccountable risk in a long term capital project. Why invest in a 5-year risky investment in plant and machinery and R&D if you can instead just acquire the competitor? That is rational, not dark. And the hand that makes this mess possible is not invisible- it is Uncle Sam again.

Mr. Hardin simply suggests that Buffett buys his way into monopolistic firms and profits. Mr. Buffett is not dark. He is simply playing the cards our dark politicians are playing. They know least about how the world works; they know most about how to retire millionaires with free health insurance for life. What’s wrong with this picture?

Three for Three: Lies of Communism and Capitalism

There were three articles in the August 14th US print editions of the Wall Street Journal and Financial Times. One highlighted what the mainstream media does not want to admit about Trump; one looked at the so called lies at the heart of capitalism and communism, and the last looked at Brexit and Germany’s view of its neighbor. This blog looks at the third hot topic of the lies of capitalism and communism.  

In “From Lenin to Lehman – the big lies“, Martin Sandbu of the FT would have you believe that communism and capitalism have failed and thus we ought to seek some compromise, some hybrid model.  This is bunk and ends up being journalistic diatribe.  The author has some bone to promote and the space offered by his newspaper editor allowed him to confuse us all.  But its not all bad news.  Let’s look at his lies at the center of communism.

Mr. Sandbu claims that there are two lies.  The first suggests that communism undid itself since it brayed its own vision of a society of equals, solidarity and self realization through collective purpose.  I can see the old black and white videos now.  The reality was that a centrally planned economy led to an inner circle of leaders who were “more equal than others” and this spread into the very infrastructure built and supplied to govern the commune.  Reality was never like this ideal.  The second lie concerns the possibility of central planning.  Trying to understand how organizations work is complex; how economies work is harder still.  Nothing beyond the planning of a dinner table is possible, lets be honest.  But some folks tried.

From here the author decides to show how and where capitalism failed.  He argues correctly that the price mechanism is a superior tool to central planning by being able to convey demand and supply conditions.  However he suggests that the price system failed during the financial crisis since asset prices were bubbling and so we all fell for the froth and of course we all missed the risk embedded, hidden in the US mortgage system.  He argues that the wealth we all thought we had in the prices of housing assets was not real.  The value was a lie.  Clearly the author is using price incorrectly.

He then asserts that the crash we experienced has left the western countries now poorer than before the crisis and so bereft of any chance to live a life better than our parents.  It seems the American Dream is neutered if you swallow Mr Sandbu’s point of view.  I think this is all twaddle.

First price and value.  Those of us that are smart enough know the difference but is this at the heart of the first lie?  Did we all feel that as prices rose into bubble status the value of our assets increased?  Yes we did.  But the lie was not in the price per se but in the processes used to derive that price.  There were policies, promoted by democrat and republican, that encouraged the start of the bubble by enabling poor folks to take out loans they realy could not afford, as a means to promote house ownership (the America dream) to more of the population.  This was followed up by exotic financial tools that spread risk across many products.  This was then corrupted by villains that poorly rated risk and those loans taken out by poor people that had no income.  So all told it was a ponsi scheme promulgated by social engineers and politicians.  It was not a simple failure of price.

Yes, as a result our economies have taken a beating.  Worse, those same politicians have throttled our economies ability to drive growth:  affordable housing is depressed; new start-ups are regulated and taxed to record lows; innovation, R&D and education are under invested and regulated.  Overall yes the American dream is under attack.  But that is not a lie or a failure of price or capitalism. It is a failure of our socialist, centralized, big government model.  We live in a near-socialist system with more controls and more of the economy under government controls than ever before.

The lie is that our media won’t report how bad this situation is.  The article suggest some middle ground is needed.  We need more pure market-based freedom to allow the individual to grow, thrive, and live on the fruits of his labor.  We need free markets.  Such freedom will lead to +3% GDP growth and then enough surplus money will be generated to pay for welafare for those on hard times.

The Inconvenient Truth About Charlottesville 

The cout detat continues apace as the establishment, the democrats and an increasing number of republicans continue to resist Trump.  Charlottesville and its aftermath was just what the doctor ordered, in the eyes of the left.  Their arch-enemy was in trouble no matter which way he leaned.  But I have to tell you, after reading the Opinion piece by Holman W Jenkins Jr., in Saturday’s Wall Street Journal, the whole things stinks.  See The Extremist Show is Just Starting.  It seems that the Democrats control the city where the application for the Charlottville demonstration,  against the removal of a civil war statue, was made.  Why didn’t they turn it down?  Did they deliberately set the whole thing up?  

But reading on we find that the democratic city members who voted to remove the Robert E Lee status have all left office.  Two didn’t seek re-election; one did and lost; and one had to leave his teaching job under a cloud due to a “history of bigoted, anti white tweets”.  It seems, according to the article, that the removal of the statue was not a popular item.  It was only popular with a small number activists groups.  The author of the opinion piece lists some of these activist groups and their background is less than savory and full of trouble making social media or principles.  The whole event seems to be a prefect set up by a number of clever inviduals who might have staged the whole thing.  It’s just too prefect and unlikely to have happened without careful planning – on both sides.  And this is the point that the mass media don’t want to talk about.  It takes two to make a fight and both sides turned up looking for that fight.  Yes, Trump took the middle road as Obama did and as explained in “Trump follows Obama’s example of moral equivalence“.

So after reading this opinion piece was I left with sour taste.  It seems that the establishment is gearing up for hard work against President Trump.  Those on the extreme right need to watch their actions.  They may end up falling for the bait and thus damaging the very think they perceive helps their cause (even though Trump does not).  The coffee was strong but with such a sour taste I had no option but to go to the tread mill for an hour to get my frustration out.  

It was wonderful to watch the preceding Friday to listen to Scott McNealy talking sense on CNBC’s Squawk Box.  He took Andrew Ross Sorkin to town over the mass media mess.  He explained to Mr Sorkin that everyone in their right mind stands against Nazis and extremeists – Trump included – and to use the argument of the change in tone, or the sequence of speeches the president made, as an proof he was defending Nazis is stupid.  Mr Sorkin was taken aback and not able to get his point over since he was pushing the establishment’s arguments.  See the video here. Mr McNealy affirms that Trump did not say or imply that any Nazis or white supremacists are “fine people”.  Trump was referring to the likehoood that on both sides, there were some there who were going to protest peacefully and some others were going to peacefully protest the protesters.  But Trump’s words were construed since it played into the establishment’s plans.  The cout detat is gathering space.

My Second of Three: The Lies of Communism and Capitalsm

Three articles came across my desk yesterday – and I noted them with a blog on the first concerning Trump/Obama.  Today my “second of three” looks at a comment by Martin Sanbu of the Financial Times, titled “From Lenin to Lehman – the big lies“.  Let me restate the lies Mr. Sandbu explains.

Communism promoted two lies:

  1. A society organized by communism would lead to widespread equality trough collective purpose.
  2. Central planning would lead to a more efficient economic system

These two lies came crashing down as we all know.  We are all human, and despite our best efforts, when you put some of our number in charge of others, they tend to pay themselves for the pleasure.  Absolute power corrupts absolutely.  The second lie took a while longer to fail but some economists nailed it.  We are all enterprising and creative individuals that seek to improve – that is a natural tendency.  Communism flew in the face of this and ignored a basic human need.  It also created a massive information problem.  The economy is so big that no amount of method or information can be gathered and analyses centrally.  There are more efficient systems to help organize resource allocation.

So far, so good.  Now let’s look at the authors’ lies of capitalism.

  1. The market values of financial and other assets accurately reflect the economic value they represent
  2. The future will always offer more opportunities for a better life than the past

Mr Sandbu has tried to make an argument in order to write a column.  His arguments are manufactured and simple, probably because he assumes you would not understand the realty.  Let’s look at them.
The first lie is explained with the argument that prices measuring wealth that people thought they had did not in fact exist.  This a massive misunderstanding of the price mechanism and what happened in the financial crisis. First, weath is always and everywhere a relative measure.  As such we need something to compare one to another – price fits the bill nicely.  Howeve, justbecause  the price of assets go up does not mean you are more wealthy.  Yes, press articles told us that as house prices went up we could therefore monetize the increase in value.  But that extra cash is not wealth – since we incurred a debt (increase in debt).

The second problem is that prices were not set efficiently.  There were several failures in the system that meant risk was not correctly priced into the asset price.  This is not a failure of price per se.  It was in part a failure of living and cheating individuals (that didnt go to jail) and incompetence by others.   If we had more transparency (and accountability) in the pricing systems that worked together, more folks would have seen the risks sooner and the bubble might have been nipped in the bud.  

The second lie is totally made up.  The author argues that we are now poorer than we were before the crisis and that our future prospects are negative such that the young are now dissalusioned.  This is fallacy.  This is not a failure of capitalism.  We do not live in a free market.  We live in a massively over regulated and over taxed econonmy.  Never before has the US government taken so much tax and spent so much (e.g. Debt) on social transfers.  The number of rules we have to follow has never been higher.  The number of rule-making bodies writing those rules, and rule-making bodies managing the rule-making bodies, has never been higher.  Over 51% of Americans receive a social transfer of some kind from the governance (see A Nation of Takers).  

If the central bank had raised interest rates sooner private industry would have returned to normal investment practices.  If the central bank had collapsed its balance sheets sooner, private funds would not have been crowded out and instead redirected to stock buy-backs and uncompetitive M&A, which has now created yet another stock-market bubble.  We need a good dose of natural, healthy, honest hard work that is rewarded and encouraged. We need to stop talking about how we are all owed a debt by the government and they should give is all that we need.  We need to take responsibility for our own success.  

The author concludes that we now need a mix – of communism and capitalism to get out of the mess we are in.  He is mistaken.  We exist today in a mixed model.  Socialist has been creeping up on us for years – and this is the analogy to communism.  No, we are not let by Leninist’s or Trotskyist’s but we are led by socialist policies that align with the lies of communism above.  We need more honest work, and honest pay, in a freer economy.  We do need regulation – but we need less so we can see where the real wood for the trees lays.

Everything Comes in Threes: Trump/Obama, Capitalism/Socialism, and Britain/Germany

There were three articles in today’s US print editions of the Wall Street Journal and Financial Times. One highlights what the mainstream media does not want to admit about Trump; one looks at the so called lies at the heart of capitalism and communism, and the last looks at Brexit and Germany’s view of its neighbor. This blog looks at the hot topic of Trump and Obama vis a vis racism.

In “Trump Follows Obama’s Example of Moral Equivalence“, Jason Riley highlights how President Trump has repeated the same method employed by President Obama when criticism torrid and unforgivable acts by extremists. The opinion piece highlights how Obama took side swipes at racist policemen in the same dialog concerning those who killed such cops. Two examples are given – Dallas last year where 5 cops were killed and then again i. Baltimore. In both examples the killing and killers were correctly vilified, but the implied unfair and even racist references to the police and judicial system implied that the killings were justified. This is the exact same “identity policies” (Jason Riley’s words) that Trump employed this week when criticizing both sides of the Charlottesville situation.  

Clearly there were extreme right-wingers and new-Nazi’s that turned up for a fight. But someone had to stand up and return that fight. That was just as clearly the extreme left. It takes two to tango. You can’t fight yourself. And better, Trump did call out racism and Nazism, but he is standing up against the left who want to push their agenda. For example, the NAACP want to ban more souther statues related to the Confederacy. This is seen as an attack on the white’s. As such it feeds into the KKK’s plans. If the NAACP focused on the future, the KKK would have little to do.

When Obama was president he was attacked by the smaller right-leaning press for his remarks. Now Trump is also being criticized but the scale tells us that the press is, in general, more left leaning.  I dont think anyone that matters endorses the white supremacists.  Trump certainly does not.  And I assume that democrats do not endorse the extreme left that seeks to promote black supremacists.  I give Trump and Obama the benefit of the doubt.  But anyone on either side of the devide that claims to be open minded, than attacks the other side by removing statuses or saluting Hitler, is not worth talking too.

The Problem with American Politics is that we Don’t Understand Each other

Left or right? Democrat or Republican? White supreme year or Black Lives Matter? These are all labels that incite a certain response, and that response tends to be negative. If that response is only marginally negative, in about three more seconds it becomes impossible to explore the meaning of the labels, to debate any issue openly and fairly, and so find any possible grounds for agreement. I saw this so clearly on Sunday morning, reading my Wall Street Journal.

In the Review section on the front page was an article by Mark Lilla, based on his upcoming book, “The Once and Future Liberal: After Identify Politics“. It is an interesting article that explores what has happened with the left-leaning side of American politics and the so called liberal wing lost its way by focusing too much on specific social goals by flouting them in front of every other policy and voter. But this is not the main point I wanted to call out.

In the opening sections of the article Mr. Lilla so nicely expresses the very reason why our politicians, even our own colleagues, are unable to discuss politics without it becoming an emotional or charged issue. The author introduces a way to look at democrats and republicans as follows:

Ronald Reagan almost single-handedly destroyed the New Deal vision of America that used to guide us. Franklin Roosevelt had pictured a place where citizens were joined in collective enterprise to build a strong nation and protect each other. The watchwords of that effort were solidarity, opportunity and public duty. Reagan pictured a more individualistic America where everyone would flourish once freed from the shackles of the state, and so the watchwords became self-reliance and small government.

This explanation of what happened at this pivotal time in US history clearly unmasks the misunderstanding that is actually reinforced and even peddled by those that want to emphasis a difference – real or imagined – between our political parties. Let’s look at this perspective for a moment. First Roosevelt. The New Deal was basically a Keynesian expansion of public sector spending. It was designed to drive economic recovery in America after the terrible challenges of the Great Depression, itself brought on and exacerbated by Congress’ unwillingness to forgive World War I debts. The New Deal of public works indeed worked substantially, and it brought with it social services to help the less-well off. However, the watchwords chosen are misleading. Opportunity is a word the right tends to see ownership of: the left tend to focus on equal outcomes, the right tend focus on equal opportunity.

Now looking at Reagan and you again would be confused. Reagan did not dismantle the New Deal. The reality is that social services and the entire continued transfer f public funds to the population continued (and continues today – see A Nation of Takers). But Reagan did ask of us all a question: Are you not first and foremost responsible to yourself? This is a key point since it presupposes that you are not, in the first instance, owed a thing. You are supposed to try your hardest to help yourself. That is why self-reliance is a good watchword, it it is portrayed as something alien to the New Deal or democratic values.

I think there is a lot more common here than meets the eyes but media, press and writers like Mr. Lilla want to paint a murkier picture since it stokes spending on their wares and it drives eye balls and voter emotions who have nothing better to do with their time (#WhileRomanBurns). Here is where the common ground exists:

  •  We are first and foremost individuals. We should be proud of our ability to stand alone, fend for ourselves, and play a key role in society, our family, and wherever and whatever we call home
  • Second we have a responsibility to our fellow man. This means we should respect her needs, her wants, much as she should respect ours. Everyone is equal under the eyes of God or the sun, which influences you most.
  • Third we have a civic duty to help others who, through bad luck and ill fortune, have need of assistance until and if they are able to again stand up and live as equal among us. We should work together to better our opportunities and the world around us. We should create civic services to serve the wider community; to educate, to serve, to heal, to protect.

These are all common ground issues. What they do not say or imply are any of the following:

  •  Minority preferences should not be flouted and used to subvert the way the majority behaves. Respect and support for minority needs will be supported, in their place
  • We are all owed an equal outcome. There are no such things as differences between sexes, creeds, religions, and secular groups. Though we all start from different places we are owed a common experience.
  • It is our right to be given a job, good health, entertainment, and all that would otherwise come to us by hard work, clean living, and honesty.

I would agree with Mr. Lilla’s premise that the Liberals lost their way. Sometime in the 1960s’ this “identify politics” become a legitimate goal in its own right. Each and every minority cause was celebrated, then promoted, then sold, as a national concern that should alter everything for everyone. Instead of mutual respect, and yes uneven experiences, liberals and left-leaning “progressives” adopted a national platform for change which resulted in a splintered view of the world, yet with the cloak of uniformity.

Likewise the right has failed too but for different reasons. The individualism that was at first a message of responsibility resulted in example after example of selfish acts, groups and even organizations. Responsibility gave way to greed. It turns out that this was not a fault of capitalism or right-wing politics. This was a failure that came about because we are all human. It is human to want, to greed, to collect. You only have to understand our history to know this. Worse, no amount of legislation can change this.  

So left and right made mistakes but rather than any third force see those mistakes and call them out, they have become hidden in the shroud of politics and now represent some underlying, simmering reason for arguing for why the other side is wrong. If we could start all over again, with no preconceptions of what is right or wrong, what is left or right, we might get past today’s current blind spot. The only trouble with that idea is that we would destined to are the same mistakes all our forefathers have made over and over again.

So for now we need to message the common ground – call it a New Bargain. Over time members from the left and right can join; but they cannot join with a message of, “I join because the other side is wrong”. They just have to forget their identity politics and remember who they are: individuals first, responsible for their own success, working together to help all have the same opportunity.