Wednesday, October 22, 2008

Spreading the Wealth, National Banks, and the Communist Family

Obama's plan to "spread the wealth" must destroy wealth and Europe's plan to nationalize banks will wreck the wealth of nations. These are things any good student of Marxism understands plainly. Karl Marx's vision of a workers' paradise also involved ridding society of mothers and fathers. Marxist Communism was never about utopia. It was always about totalitarianism. It's amazing how close to his vision we are getting.

Spreading the wealth around is an idea at least as old as Karl Marx’s Critique of the Gotha Program in which he wrote: “From each according to his ability to each according to his need.” To Marx this notion was a transitional principle leading to the workers’ paradise. It was part of the “dictatorship of the working class.” Ultimately, Marx desired that there would be no wealth to spread around. He desired the abolition of capital. That is, Marx envisioned the abolition of the means to relate to others in terms of employer and wage earner. It was an idea that never worked very well. Why? Have you noticed the flaw in Marxist logic? If there is no capital, there can be no wage earners, or in other words, no jobs. Therefore, Marxism leads to the absence of wealth! If you study Obama’s tax plan you can see that he desires the abolition of capital also. Even if jobs cannot be generated, even if the United States is in the middle of a recession where jobs are getting scarcer every day, Obama is sticking to Marxist transitional principles.

Although some five star generals might not like to hear it, illogical notions don’t work in the real world. Because of the failure of these Marxist ideas in practice, as well as on the drawing board, one almost suspects the motivation of anyone in any government who proposes them. On one level the motivation seems plain. The appeal of Marxism can be outwardly pleasant. When we humans don’t get what they want, it feels very unfair to us. It is easy to demand fairness instead of responsibility, and it is even easier to promise to make things fair by taking some one else’s property and making a gift of it to those who desire “fairness.” As a parent my response to the fairness argument has always been, “You bet life’s not fair, and a good thing it’s not! We live in America and other’s don’t. What’s fair about that?” Well life may be getting fair for those who live in Red China. We’re not far behind. In fact, capital seems to prefer Beijing.

By the way, some wonder whether the United States bank bailout plans will work. Interestingly, here is the fifth of the ten Marxist preconditions for a workers paradise first outlined in the Communist Manifesto: “Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.” Pope Paulson I, by the way, is conservative compared to the Europeans. They are completely behind Warren Buffet’s notion of buying up bank stocks to “recapitalize” them into borrowing, but Henry Paulson had to be dragged kicking and screaming to this table. Even now, he only wants to use a quarter of the cool trillion dollars printed by the congress for nationalizing banks. Will such bailout plans work? It depends on what one means by “work.” If one knows history and knows the failure of Marxist theory, one can be certain that the bail out plan will not produce wealth. However if one hates the United States because of its international prestige, its great abundance, and its liberties, and, as a student of Marxism, has been awaiting a crisis of capital to forward the communist agenda for the express purpose of ruining the wealth of nations, this bail out will work perfectly.

By the way Marx had some interesting notions about marriage as well. The Manifesto reads: “Bourgeois (an employer’s or rich person’s) marriage is (because of rampant infidelity), in reality, a system of wives in common and thus, at the most, what the Communists might possibly be reproached with is that they desire to introduce, in substitution for a hypocritically concealed (system of free love), an openly legalized system of free love. Yes, an organized force that disrupts the marriage one’s marriage was part of the plan for a worker’s paradise. So what happened to “the community of women” that would eventually bring an end to the nuclear family? Do we see such institutions in existence today? Ahhh… no. That was another failed Marxist notion.

In general though, the nuclear family appeared to be a threat to the burly bearded communist theorist. Again, the manifesto reads: “Abolition of the family! Even the most radical flare up at this infamous proposal of the Communists…” Outside of the revolutionary party’s “community of women” the destruction of the nuclear family would occur without systematic intervention (except by public schools). Once capital had been destroyed, Marx believed, of nature course the workers paradise would feature no mothers and no fathers. Although Marx claimed that “the bourgeoisie has torn away from the family its sentimental veil, and has reduced the family relation into a mere money relation,” he was wrong about that as well. No, it would be a hundred and fifty years before the Supreme Court of California, not the bourgeoisie, did this. Even if you don’t like McCain or Obama, Californians should get themselves to the polls and vote “Yes” on Proposition 8.

A careful read of the Communist Manifesto will reveal its ambitious aims to amass the power of the state in the hands of the few. This, not a workers’ paradise, is what following the Manifesto’s outlines have always achieved for those who have used its perverse arguments to their advantage. If you’ve ever wondered why America, despite its tremendous powers of innovation, has been increasingly in debt, in the red, since World War II, consider some of the other preconditions for Marxist communism that were first set out in 1847. Precondition #2: A heavy progressive or graduated income tax. Precondition #3: Abolition of all rights of inheritance. Precondition #10: Free education for all children in public schools… That’s why we need the flat tax, school vouchers and to protect traditional marriage. We need to say no to the Obamanation.

Thursday, October 16, 2008

Free Markets, Crashes, and Other Parables

“We have now entered the final phase of the boom-bust cycle--the search for villains for past ill deeds and the search for reforms to prevent future calamities. But in the panic to sell shares in U.S. companies, investors are deaf to good news about the resilience and productivity of the American economy just as they were deaf to bad news at the height of the market euphoria.” These words, penned by Laura Tyson in her 2002 article, “After Irrational Exuberance, Irrational Pessimism” are, once again, almost completely relevant to today’s market. Perhaps what’s missing is the good news. Oil going down is apparently something approaching a positive, but that’s it. However, because of the consistency of human deafness to market fundamentals, Ms. Tyson’s article is almost always partially relevant. Here’s the sad little story rife with truths.

From 2003-2005, real estate, like the equity markets of the late 1990’s, had that peculiar reek of impending disaster that emerges from willful ignorance to market forces by those who should know better. A March 2008 REIT Wrecks article commendably explores the death of real estate’s canary: in 2005 rental occupancies fell despite declining rents. The article, “Play Subprime Safely With These Residential REITs” carefully exposes the Spiderman-like tingling those who specialized in rental properties had. They could smell the gas of the broken main. They knew that all that was driving real estate was the money supply. The loan amounts kept increasing as the credit requirements decreased. The only impediment to receiving the cash was having a residential deed to sign.

Interest rates finally began to rise, but they were answered with more easy money. After all, the changing bankruptcy laws of 2005 (making Chapter 7 debt forgiveness more difficult to come by) meant that more foreclosed assets would be available to offset these bad loans. Even more importantly, as far as the speculative eye could see more and more non-standard loans were coming down the pike. Hence, real estate had to continue to rise as the free money bid them well above their actual values. If real estate had to continue to spiral upwards, then even foreclosed properties would be worth more than the original assets. Hence, easy loans were more easily packaged into marketable “securities” that, based on an implied connection between Fannie, Feddie and the Feds, met only the most cavalier inspections. Who’d know? Who’d say anything? The only evidence of this covenant with disaster would be the mushrooming commissions on portfolio mangers’ Christmas bonuses.

However, even the “victims,” those with no credit who took exorbitant interest rates hits, laughed out loud as they signed and swore on a thousand dotted lines. Even they thought they’d hit the Vegas craps. “Why worry?” they thought; they could to sell for a 15% profit in a year. That would be more money in one place than they’d seen in their whole lives! Everyone was doing it… Then oil hit the roof, and the predatory lenders headed for the high grass. Everyone knows the rest.

Just as in the dotcom bubble, those who should have known did know. But why pull the fire alarm and alert the police? Instead, lawless bands of speculators who knew better, weren’t betting on the American dream. No, they were betting they could get out of town before the three alarm conflagration was noised abroad. The parable? Markets don’t need corrections, people do. The moral: unregulated markets will result in great prosperity only in proportion to the sense of responsibility and the recognition of the ethical source of prosperity owned by those that participate.
California, here’s the allegory: As free markets are to ethics, so is a great nation’s government to the truth. As the real estate fundamentals were eroded by senseless monetary expansion, so the credibility of our government will be eroded if we enshrine lies in our laws. Vote “Yes” on Proposition 8.

As depressing as today’s corruption of our markets may be, it has a precedent. As Frank Shostak discusses in his article, “The Prophet of the Great Depression,” two Austrian’s, Friedrich Hayek and Ludwig von Mises, based on their theories of credit expansion, predicted the Roaring 20’s would end calamitously. The Austrians used a cool math based on exchange rates, but the reality is that no wizard-like forecasts are required. Indeed, even the victims of this latest real estate credit bubble knew what they were up against. They knew they were at cross purposes with the basic principles of responsibility, ethics, and, hence, genuine prosperity. We all finally got what all involved already owned.

Individuals cannot live a lie and escape the consequences. Don’t try to tell such people however, for you will be mocked to scorn. Likewise, societies cannot live a lie and long endure. But what if that lie is consecrated by the consensus of one’s fellow creatures, as was the run on equities in the 1920’s and the run on real estate in the twenty-first century? It doesn’t matter; such a nation and such a person cannot prosper. Even if so many thrill with the lie that one might say the lie is “normal,” a lie it is nonetheless, and who are so heedless cannot prosper. Whether it is abandoned at the church door or at the cork of those spirits that cry “you can’t prove it!” discard reason at your peril.