Sequestration Standoff Solution

Regular readers know that we here at AWildDuck have a love-hate relationship with the US president. We endorsed him in the November election, but we had some blunt and critical reservations. Of course, bluntness is our trademark style, but in this case, we explained a schism in ethos that reduces the effectiveness of the American president.

Mr. Obama rivals Bill Clinton in his command of foreign policy. He has an innate understanding of democracy, law and homeland security. He is an ethical man with good ideas about helping to elevate those who cannot help themselves. But he lacks a fundamental belief in free market economics. He is suspicious of wealth—and for some reason, he thinks that someone earning 100 times as much as another individual should pay far more than 100 times as much in taxes after you deduct basic living costs for both individuals. Although supporters refute the “socialist” label that is tossed from the right, it is not completely unjustified. Recall how Obama railed against corporate ‘fat cats’ who fly on corporate jets. Obama feels that it is not sufficient to build a safety net for the poor, he has a mission of doing it by soaking the rich.

[caption id="attachment_2184" align="aligncenter" width="724"] No compromise: Obama wants higher taxes on high earners[/caption]

Of course, the problem is that there is not enough wealth in the 1% to address the hole that we have dug. More importantly, he fails to accept the basic premise of capital in-centives. Did he miss a principle taught in every first-year economics class in the free world? Time for a refresher. If you slept through that class, here is the Cliff Notes version: If we punish individuals who build business, employ the middle class and already pay the lion’s share of taxes, then these individuals will build empires elsewhere.

So, since we really do like Mr. Obama, what is a Wild Duck to do?

In the build up to possible Sequestration (America’s newest fiscal cliff), we believe the solution is for Republicans to let the budget ax fall where it may. Don’t compromise on letting the White House legislate ever higher disproportionate tax tiers. That plan is not only divisive, it is a path of economic suicide. It can only lead to capital flight.

Today, in a Wall Street Journal editorial, John Boehner explains that the idea for automatic and across the board budget cuts originated with the White House, but we dispute that looming cuts were designed solely to force bipartisanship and scare legislators into crafting a more palatable plan. Nonsense! Sudden and drastic cuts are necessary to demonstrate to our creditors that we understand our obligations. We cannot continue to renege on debts and fleece our own grandchildren, by continuing to spend beyond our means.

As we go to press, sequestration is 10 days away. In a speech tonight (Feb 19, 2013), Mr. Obama stood before a gaggle of first responders, insisting that the indiscriminate cuts mandated by sequestration would result in layoff of thousands of safety personnel, teachers, airport security and flight controllers, and result in the cancellation of the Head Start program and urgently needed upgrades to an aircraft carrier.

Analysts say that Obama has the high ground. They say that if economic malaise ensues, Republican legislators will be held accountable. We agree. That’s because he is not only an ethical man, he is poised and articulate. And of course, as Republicans often complain, he is extending his campaign mode instead of offering to compromise with legislators.

So, with apologies to Jonathan Swift, we wish to proffer our own modest proposal. An idea on how Republicans can seize the high ground without giving in: We humbly suggest that Republicans announce a press conference immediately. “Hello, America...We understand that indiscriminate cuts would cripple the economy and penalize the needy. We will compromise. We cannot stand by and watch senseless cuts, and so we offer to work with the president on sensible cuts.” Since we cannot seem to agree on taxes, we will work hand-in-hand with the president to reduce the deficit by prioritizing the cuts that are mandated.

[caption id="attachment_2192" align="alignright" width="272"] Indiscriminate cuts disastrous?  So, discriminate, Mr. Obama.[/caption]

Of course, we are in the midst of a crisis, so we won’t limit our cuts to obvious waste. We will make the tough choices and target all those programs that the president never mentions in his popular stump speeches. Hmm-m-m. Where to start? How about you, Mr. President? Any ideas?

This position, will remind Americans that while the president points to the calamity that accompanies cuts to teachers, firefighters, air traffic controllers and battleships, he never cites the other end of his list. What programs can be eliminated or cut way back?. It’s easy to denounce pork and graft, but where will the real belt-tightening begin? Since the wealth of the 1% doesn’t amount to a hill of beans, this is a discussion that really needs to be vetted. And very soon.

Let’s be clear: We support President Obama. In most of his pursuits and methods, he has our admiration and endorsement. But it’s time that this Harvard Law student gain macro-economic perspective. We think that an offer to let the president take the lead in slashing the budget will turn the conversation and take the wind out of his argument that the deficit can be addressed by soaking the wealthy.

Try as he might, nothing the president can do will soak the wealthy. It is not realistic. It will only move the wealth out of the United States, along with the jobs, the technology, the Nobel Prizes and the economic gains that follow it.

As we go to press, it’s reassuring to see The Wall Street Journal agrees that mandated cuts driven by a firm deadline may not be a bad thing. But this is not exactly our point. In our opinion, they needn’t be across-the-board.

— Ellery Davies is editor of AWildDuck. Once in awhile,
he returns to his roots and becomes a political pundit.

Barack Obama: A Qualified Wild Duck Endorsement

Check out this February Sequestration update:
Let it occur. But shift tough decisions to Obama

It is with mixed feelings that Wild Ducks endorse Barack Obama for a second term as US president. Here is our armchair analysis of his good points, bad points and a few that are not-too-good/not-too-bad or unclear...

The Good

• Character: Barack Obama is an ethical man. He is honest, trustworthy and cares about protecting the vulnerable. Despite his ascent into the upper class, he is class-agnostic; a rare quality in politics. “Character Counts”, a catch phrase of past elections, is often twisted by the far right. But as sentiments go, it fits.


• Pro Choice: No matter how divisive the issue, reproductive decisions should never be fettered by legislation. It is not a communal issue. It is private & personal. Obama understands this.


• Gay & Lesbian Rights: Barack Obama is the first president willing to recognize the rights of homosexuals (supporting the right to marry, repealing Don’t Ask/Don’t Tell). Sexual orientation is not a conscious choice. Gay citizens are what they are. Even if it involved choice, it is clearly a personal issue and should not be the target of statutory discrimination. We must get past a tendency to project moral and religious beliefs upon our neighbors. Obama has set a new course for tolerance and acceptance in all sectors of society and at great personal risk.


• Human Rights: Obama falls on the side of human rights and dignity, even when it is difficult (torture, sweatshops, prison labor, etc.)


• Mixing religion into affairs of state: Obama understands that governments should be agnostic.


• Consistency: In this area, Obama presents a clear contrast to Mitt Romney.


• Health / Obamacare: I have never delighted in socializing any aspect of the economy, nor forcing Americans to purchase anything. Let’s face it: Forced health premiums are a tax, no matter how you sugar coat it. But with this life & death issue, I don’t see how we can avoid socialized health care. It works in Massachusetts and it is preposterous that Romney now distances himself from that program.


• Military: Obama strives for peace, but uses force where necessary. He has not failed us.


• Military: Obama understands that it cannot be viewed as the driving sector for the entire economy. Romney wants too much military. And he cloaks it with the unfounded fear of a weak America.


• Environment: Despite assurances that the US will source more oil & coal, Obama certainly understands global warming, erosion, and pollution better than Mitt Romney.


• Risk: Obama has never been risk averse. (Possible exception: His failure to stand up to teachers unions). He faced great risk taking on the economic stimulus, gay marriage and health care despite the potential for popular backlash.


• US Stature: I vehemently disagree with Romney’s characterization of Obama’s “Apology Tour”. Obama wasn’t apologizing. He addresses the very accurate perception that America is arrogant and tends to use military might to unilaterally push economic or social policy abroad. He has not yet had much success in this area. But I give him points for moving in this direction.


• He is as American as apple pie: Donald Trump is downright daffy.  [Scroll down]...

[caption id="attachment_1870" align="aligncenter" width="584"] On Donald Trump: “This all dates back to when we were growing up together in Kenya.”[/caption]

The Bad & The Questionable

Barack Obama has established trust and executive credibility beyond doubt. But, with four years to demonstrate progress and competence, he has been weak in two critical areas: Domestic economy and improved employment. A president wields significant influence regarding the role of government in free markets. As unemployment barely falls back to the same 7.9% of his first-term oath, one wonders if Obama could not have pulled harder to get a rabbit out of the hat. He has failed to show aggressive action on the real, underlying engine of a robust economy: private sector jobs and exports.

Moreover, Wild Ducks disagree with the fundamental basis of his economic doctrine:

• Government’s role in capital markets: Obama tries to pick winning technologies for public investment and he propped up auto manufacturers and banks. Although some of these ‘bets’ may have paid off, it is not clear that the US economy would have been worse in the absence of direct intervention.


• Taxes: Obama has acquired a reputation for being a socialist. It is not an unfair label. Wild Ducks are concerned that Obama exhibits a lack of capitalistic perspective. Most citizens accept the obligation of a public safety net for those who are out of a job, out of luck or desperate. It’s one thing to use public funds, but it’s another thing, altogether, to tax disproportionately. He disparages those who build businesses and as a result achieve wealth. He has a penchant to use taxes for redistribution and to tinker with private enterprise and free markets. He unabashedly rallies to his base with fervent cries to soak-the-rich. Just listen to him rail against anyone who owns or flies on an executive jet.


• Failure to take on the national debt: As the nation moved past the initial economic stimulus, Obama had no grand scheme to address the elephant in the closet. He missed an opportunity for a broad based assault on the biggest threat to prosperity in the new century. This one issue could prematurely stifle a great nation. It is likely to loom over our children’s generation as the most damning setback to lifestyle and financial security.


• Jobs: In this area, Obama has some progress, but not enough. Despite gradual economic recovery, employment is not rising quick enough to save homes, save marriages, and save nest eggs. Of course, the national debt, a skilled work force and education go hand in hand.


• Questionable support for Israel: Israel is a critical, strategic ally and a worldwide engine of science, technology and capital growth. The people of Israel share our ideals. Most Americans care that Israel remain safe within its borders.
  In March 2012, Obama assured Benjamin Netanyahu “America will always have Israel’s back.” But the promise rings hollow. Obama’s positive sentiments are countered by callous action. Many mixed signals here... Obama has snubbed Israel on at least two occasions. His public pressure on delicate political and security issues has emboldened Palestinians.


• Nuclear Iran: Obama is uncertain or unclear in articulating a hard line against a nuclear armed Iran. Regardless of US-Israeli relations or the price of oil, Obama should have drawn a “red line” at the United Nations meeting in September, rather than forcing Benjamin Netanyahu to make things clear.
  
  [caption id="attachment_1869" align="alignright" width="284"] US fails to draw a line. Bibi makes it clear.[/caption]
  
  Obama concedes that Iran has acquired nuclear technology, has built or refined components of a weapon, and that they have the capacity to assemble these pieces. Yet, he claims that Iran does not present a risk to regional peace, because there is no evidence that they have obtained a delivery vehicle. The reasoning is naïve and reckless. Iran is a led by religious zealots who spew hate and constantly threaten to obliterate their neighbor.

The Not so Bad / Not so Good & The Unknown

• Education: Too much is unknown. During the Clinton era, this was Hillary’s hot button. But we didn’t see compelling policy directives from Obama during his first term. If it does not surface during a 2nd term, we will be disappointed. One can only hope that Obama pushes for expansion of the charter school model and a “de-fanging” of teachers unions. These unions are pro-Obama. This could be attributed to Romney’s unpopular statement about class size. (He doesn’t feel that it impacts the quality of education). In fact, union agenda is often at odds with a quality education. The good news is based on first-hand experience: An education system does not require wads of fresh cash. It can be built around the provably successful charter school model. Obama may have been reluctant to advocate for charter schools during his first term, because it would gut his union support. In a second term, he needn’t appease a constituency that exists only to secure the jobs of burned out incumbents. It is our hope that Obama musters his Mojo and his well-deserved reputation for standing up to special interests.


• NASA: A tough one. Under both Bush & Obama, the space agency was severely defunded. Yet, private programs are beginning to fill gaps. We don’t know Obama’s impact on facilitating private efforts or how much the nation can put into NASA. For now, Wild Ducks give Obama a “Pass”, but acknowledge that his broad impact is yet unknown.

What about Romney?

If there is a sufficient demand, AWildDuck will create a similar Pro/Con list for Mitt Romney. But we confess that it will be difficult. Romney’s major “PRO” is the fact that he has business experience and certainly has a more innate belief in unfettered, capitalist market mechanisms. But it would be very hard to ascertain his position on many social and government issues. In our opinion, he waffles like Aunt Jemima. While this may sound biased and trite, consider two striking examples:

• Mitt Romney claims that he would not limit a woman’s freedom of reproductive choice, yet in the same week, he assured conservative media pundits that he will sign any anti-abortion law that crosses his desk.


• Romney criticizes a national health care program modeled almost entirely on his own initiative as governor of Massachusetts. A fact made even more absurd by the fact that the program is a success. Why is Romney so against it for other states? How can he take credit for one while disparaging the other with gusto?

In our opinion, Romney distorts Obama’s record to suit his message. Obama does this too, but Romney has elevated the distortion to an art form. Our main problem with Romney is that he is disingenuous.

Ducks side with Barack Obama on 83% of issues and with Mitt Romney on 57% of issues—weighted for each issue by importance to the respondent. With whom do you side? Take this quick, non-partisan survey. The results may surprise you!

I’m Ellery Davies, and I approved this message.

A backward glance at Ron Paul

Here at A Wild Duck, politics is one of our Raison d'être. It appears on every page in the masthead, above the menu bar.

But regular ducks know that we never push a candidate. They also know that our social opinions lean sufficiently to the left (privacy, personal freedom, pro-choice) such that we would probably have little to say about the Republican Party presidential nominee in the US race for president.

But Ron Paul is no regular Republican. In fact, it’s not clear that he is a Republican at all. Other than a penchant for fiscal restraint, he doesn’t talk-the-talk or walk-the-walk.

My father died late last year. He was in his mid 90s. In his last months, we talked about the coming 2012 US presidential election. As it became gradually more difficulty to get out of bed, we watched a lot of political interviews and wonks.

Dad voted for Obama in 2008, but more recently, he was a Ron Paul supporter. He didn’t feel that Paul had a chance, and so he was also very interested in the Republican debates. Could one of the other Republican candidates counter his concern that Obama, an articulate man of integrity and principles, was leaning too much toward a socialist view of economics?

Dad felt strongly that despite Ron Paul’s appearance at the debates, the networks were shutting him out of the spotlight: Less discussion of his ideas and fewer interviews & features than warranted for a US Representative serving on and off for 35 years.*

Ron Paul was offered a speaking slot at the RNC, but he refused the two conditions of his invitation: That he give Mitt Romney his full-fledged (unqualified) endorsement and that his script be vetted by the Romney campaign. He refused, of course. Ron Paul can't be bought, bribed, cajoled, or won over. What he stands for is clear, unwavering and is stated with surprising simplicity.

What does Ron Paul stand for?  Check out this RNC tribute video.

[caption id="attachment_1673" align="alignleft" width="283"] Ron Paul: Consistent on the deficit and a need for limited government[/caption]

Ron Paul is a strict constitutionalist. He has always stood for smaller government, lower taxes, less redistribution of wealth, dismantling the Federal Reserve Bank and respect for individual privacy. He believes that the US is too quick to borrow, tax, spend and raise the debt ceiling.

He doesn’t associate with the “conservative-right” blending of religion and intolerance that is baked into the RNC platform, but there is controversy about his failure to denounce support from white supremacists, xenophobes and other racists groups. (Links omitted intentionally–Readers can Google these issues). This is apparent in a Newsletter that he published early in his political career, but that he now claims was written without his supervision.

Then, there is Israel...Paul wants to cut off aid to the American ally completely. But then, he is an isolationist in general. He doesn’t want US taxpayers to support any extra-territorial missions. Finally, his staff members state that he is very uncomfortable in the presence of homosexuals, but feels strongly that they should be able to live with the same privileges and freedoms that all Americans take for granted.

If Ron Paul were still in the running for a party nomination, the possibility of latent racism or anti-Semitism would merit serious digging. On his economic positions, he shines. He embodies the Holy Grail that–for me–has always been so elusive: Paul is an economic conservative and a social liberal.

The video tribute includes one of my favorite Ron Paul quotes: “Living beyond our means forces us to live beneath our means.” It also includes a statement by his son, US Senator Rand Paul. He explains that Washington lobbyists don’t stop by Ron Paul’s House office, because they know that he can’t be bought. If true, it makes a powerful point about lobbyists. I would hope that at least a few of them believe in the legitimacy of their arguments and the nobility of purpose. Why don’t they visit their own representative simply to present a persuasive argument based on its merits and their own sense of duty, logic or emotions?

I don’t know if Ron Paul could ever be US president. Even if his message resonates 4 years from now, his age would certainly be a negative factor in the 2016 election. But I wish that he were the current Republican candidate running against Obama. Paul -vs- Obama. Both candidates are articulate, with clear principles, and yet a profound difference in beliefs. That would be a very interesting contest!

Here at A Wild Duck, we still don’t endorse candidates. That’s why we held back this OpEd until the Republican National Convention. But we certainly like Ron Paul. Here is a man who stands for something on which most Americans agree, and yet few of their representatives have the backbone to explain with its full ramifications. At a time when China and Arab countries are owed so much from future generations, isn’t it time to sound the alarm bell? Isn’t it time to suck in the gut, hunker down and take personal responsibility for our debts and productivity?

* Ron Paul has been a member of the US House of Representatives during 4 decades: 1976-77, 1979-85, 1997-present.

Ellery Davies is chief editor of A Wild Duck. He hasn’t discussed a Republican candidate or politician since the Reagan era—perhaps to avoid personal attacks on character or platform.      -g.a.

Australia finds an effective smoking deterrent

Legislation against activities of compulsion are rarely successful. Even if a population is predisposed to abide by the law, they may be physiologically wired to follow the compulsion. Addiction and desires are driven by powerful evolutionary forces. People tend to find a way around statutory and cultural restrictions.

Consider the governments, churches, civic groups, schools and parents that have sought to restrict sex throughout human history—for example, among individuals who are unmarried, gay, underage, dissimilar heritage, or simply in a school, church or prison. Do laws and even physical barriers stop people from having sex?

Swollen bellies amongst high school students suggests that rules can be broken. And pregnancy represents the tip of an iceberg. It results from a fraction of sexual encounters and many are terminated before they are evident, because of the law, the parents, or the shame of discovery.

It’s easier to prevent cats from reproducing. Simply neuter them if you can catch them before they produce litters. But governments generally don’t sterilize their population. That makes it difficult to get reelected, at least in a democracy.

Smoking may not be as universally enjoyable as sex, but for smokers, it is also a powerful compulsion. How can a society ban a desirable activity that the majority agrees is harmful to health and to the welfare of the society at large? Here, then, is a Wild Duck guide to curtailing the use of cigarettes...

1.  Ban It
If a government bans a vice (like smoking), it simply drives it underground. Just ask any American who was alive during Prohibition. Alcohol was everywhere, but profits accrued to the Mob instead of to the producers and government.

2.  Tax It
Does a selective tax discourage consumption or a particular activity? It certainly seems like it should work. These are called vice taxes.

But what seems valid often fails supply-and-demand realities. If a government taxes something that is cheap to produce, people will find a way to evade the tax. Either the consumer will buy it out of the jurisdiction, import it, or the manufacturer will produce unreported products. The vast and free-flowing nature of the Internet makes all of these things difficult to police and even more likely than they were before.

3.  Scare the Hell Out of Consumers
The Australian courts have just approved of a measure against which tobacco companies fought with all the gusto they could muster. Beginning late this year, cigarette packages will be completely covered by a horrid photo that graphically depicts the consequences of smoking. It’s not just a written warning. It gets you right into a rotting jaw, cancer of the eye ball, or a suffocating child. The photo and a dire warning will cover the front and display edge of the package. The rest of the box will be drab olive green regardless of the brand. Other illustrations, cartoons or images are prohibited...not even a brand logo!

Will people find a way around it? With bans and taxes, there is a strong incentive to circumvent rules. But I don’t think that consumers will go out of their way to purchase cigarettes from unknown sources to avoid a disturbing package. People still want their smokes. With the Australian scheme, people can still smoke–the brand they crave, from a trusted source, and without onerous taxation.

But the Australian parliament realizes that smokers cannot circumvent death and disease. That burden is not foisted upon you by government. It’s a just a fact, plain and simple. Their new rules help ensure that the smokers aren’t fooling themselves. Cancer and death will no longer be out-of-site, out-of-mind.

If the goal is to reduce smoking, this last idea is likely to achieve the goal. Most of us want to live. In the United States and Europe, warnings are a bit abstract and hypothetical. Australia’s packaging rules take the danger of smoking and shift them from a theory to stark, in-your-face reality.

Australian legislators are clearly Wild Ducks at heart. They understand compulsion. For some smokers, the desire to avoid a graphically depicted, painful experience may exceed the desire to get a quick nicotine high.

Apple’s Trade Embargo. Is it “racial” discrimination?

I generally shy away from trendy stories of the day. They are covered elsewhere and the wonks are predictable. Columnists and bloggers add spin of their own camp, either liberal or conservative. My take on these stories would be similarly predictable. That’s why I hold out for something with meat on the bone—something to which I can lend a Wild Duck insight. After all, I want the ‘wild’ part to mean something.

But today, a story making news misses a very critical fact. One that changes the conclusion. Let me explain...

Sahar Sabet is a typical America teen. Although she comes from Iran, she is a US citizen. She looks, speaks, dresses and grooms like a typical, white, suburban girl. Of course, even if she looked, dressed or behaved as a foreigner or an immigrant (an absurd determination for a country filled with immigrants), you would expect that in a shopping mall, she would be treated like any other shopper.

This weekend, Sahar and her uncle browsed an Apple store at North Pointe Mall in Alpharetta Georgia. Choosing an iPad, the salesman overheard the couple speaking in Farsi. When Sahar explained that it is the language of Iran–also known as Persia–the salesman prohibited the sale, explaining “Our countries do not have good relations”. He stated that Apple enforces a trade embargo against Iran and several other countries and showed the would be customers a written Apple policy which, itself, cites US trade restrictions.

For consumers of mainstream media, the Apple salesman seemed racist or, at the very least, ignorant. What do trade relations have to do with a retail sale? And how could he miss the fact that Sahar is a citizen of the same county as himself and the late Steve Jobs?

Sitting outside her home and talking to a television reporter, Sahar explains that she left the store in tears. Zack Jafarzadeh had the same experience at the nearby Perimeter Mall. Perhaps more bizarre, he is born in Virginia of Iranian ancestry. In the video clip below, he states that the policy smacks of ethnic profiling. Of course, the Council on American-Islamic Relations (CAIR) protested the incident immediately.*

You will find a great many news stories about Sahar’s trip to the mall this week. But a few stories, like this firsthand account from an Atlanta television station include a fact that is critical and yet overlooked in the commentary. It makes all the difference in the world:

“The iPad was to be a gift for her cousin who lives in Iran.”

Wohah!...That changes everything! The US trade embargo law specifically mandates that the store shall not sell embargoed technology if they know that the product will be exported, transferred or re-exported to Iran. It’s not clear if the salesman was made aware of the intention to export the iPad, or if he was a closet racist, or perhaps he was expressing his own post-911 anxiety. But either way, this is valid trade law, and Apple would get into a lot of trouble if they violate this law.

Zack was born in Virginia. Both he and Sahar are as American as apple pie. So naturally, news reports slam the Apple salesman for profiling immigrants. They also question the role of a private company in enforcing a federal trade embargo at the point of sale. But again, they miss the point. To illustrate, consider this bump in the success story of Digital Equipment Corporation, the Massachusetts minicomputer manufacturer that rivaled IBM in the 1970s and 80s...

In the early 1980s, Digital’s flagship minicomputer, the VAX 780, had the distinction of being on the original list of embargo technology. Naturally, during the Cold War, sales of fast computers to the Soviet Union were restricted.

[caption id="attachment_1432" align="alignright" width="281"] During the Cold War, selling fast computers to Soviets was illegal, even if transferred through an intermediary or neutral country.[/caption]

Sellers of large, expensive computers generally know their buyers. Even if a deal is not initiated by the sales team, sellers defend price and competitive position. Engineers at buyer and builder talk nuts & bolts. This was no exception. But because Digital could not openly sell to Russians, they transferred the machine to an American shill organization, because an intermediary is more likely to fly under the radar while transferring the computer to the Soviets.

Bad move, Digital! The deal was discovered and the company faced an inquiry and stiff penalties. Most importantly, they were disgraced in the press.

Regarding the Apple iPad, one could question the law as it applies to a popular consumer item, one that is available in many other countries. But the law and its clear focus on export awareness by sellers restricted lends a different spin to the Apple salesman’s actions.

Just as with Miss Sabet, Mr. Jafarzadeh was purchasing the iPad for an Iranian friend who accompanied him to the store. He was in the United States on a student visa. If this fact were apparent to the salesman, then he would be compelled to deny the sale.

Incidentally, Sabet’s mother was able to purchase the iPad on a subsequent visit and an Apple spokesperson told reporters that it could also be purchased online to circumvent the policy (or at least the enforcement of the policy). While this may be the case, it might still violate US trade law. The law is clear. Certain products, services, technology and components are prohibited from being sold, directly or indirectly, if they are slated to be exported, transferred or re-exported to countries on a technology embargo list that includes Iran, Cuba, North Korea and Syria.

_____________
* Despite the warm-fuzzy title, CAIR is a widely acknowledged front for terrorists, still operating, openly, within the United States. The group’s actions speak volumes about their agenda, posing as an NGO of tolerance and cultural bridges while seeking to use our western tradition of inclusion, tolerance and accommodation to make Islamic Sharia Law palatable in America. But I digress. We can cover that story in another post.

Does “Buy American” expand USA jobs or manufacturing?

Today, I received a chain letter from a relative and very close friend. She rarely forwards mail that ends with an urgent and passionate demand to “pass it along”. That’s just one step above the ones that tell you about the misfortune that will visit those who fail to pass it along.

But this individual is wiser than me and always speaks the truth. She is not given to scams, and so I carefully read the chain letter. You may have seen this one. It has already caught fire...

In a spasm of patriotism and economic self-determination, the letter implores every American to Buy American. It doesn’t go into the reason. After all, it’s self evident that buying goods made in your own country will expand jobs and manufacturing in your country. Right? Instead of justifying the urgent advice, it describes how consumers can find the origin of consumer products by inspecting the UPC code. The author includes a small table. It shows the relationship between the first digit of a UPC code and the country that manufactured the product.

I won’t include the original email in this post. It’s not that I don’t respect my friend. Rather, my decision is based on these things:

• Reposting it here does not help to explain my point of view


• It’s a chain letter! A reliable indicator that it must be wrong


• I don’t want to attract search engines based on the content of a chain letter

__________________________

Hi Ruth. There are two issues here:

1. Do UPC product codes really tell the buyer about the country of origin.


2. Is “Buy USA” a solution to unbalanced trade and a shrinking manufacturing base?

1.  Do UPC codes show origin ?   Answer: "Not at all !"

I own a block of UPC codes to use on computer products (or whatever I choose to sell). Blocks of unused codes, or more precisely, the manufacturer code prefix is sold without asking about the products that I intend to assign or where they are manufactured. Quite simply, no one ever asked me about the things that I make. I only know that when I began selling network gear and software on Amazon, I needed to buy UPC codes and they told me how to do this.

If a manufacturer or bundler does not need thousands of codes, but needs only a few, the unused subsets are sold between previously authorized parties. Although the issuing organization discourages this practice, it is perfectly legal and there is an active market for codes issued to small vendors. Here too, the story is the same. You can by the code from owners in any country and they don't ask for what products you intend to use the code.

This may seem contrary to the UPC purpose. If the product and country are not registered, how can the cash register/lookup mechanism know about the product and its value at the point of sale. The answer is simple. That information exchanged between the wholesaler (or mfg) and the retailer whenever a new stock item is contracted.

One final note: You may have seen some internet sites that tell you what product is associated with a specific UPC code. Yet, there is no international registry of code relationships! This information is compiled after the fact from consumers and from sites that advertise the products. It's easy to do, because many retailers use the UPC code number as their own SKU (the inventory stock number).

2.  Does “Buy American” expand US jobs or manufacturing?

Unbalanced trade and a shrinking US manufacturing base is a very serious threat to our way of life. On this, we agree...

To many, it would seem that the way of re-balancing trade and expanding our own manufacturing base is to persuade consumers to Buy American. Presumably, this argument says that it is more important to be patriotic than to base a purchasing decision on quality, features, value, safety, design, or other aspects.

I am not sure that I agree. While I am very concerned about saving US jobs (including my own!), I see a terrible conflict between this logic and basic economic principles...

In the 70s, the US was caught off guard by expansion in Japan, a strict adherence to quality standards, a very close relationship between vendors and manufacturers, and a just-in-time manufacturing. If Americans had stuck to the principle of buying American, we would have had overpriced cars that fall apart quickly. More importantly, our autos would be rejected by European and emerging nations, because of an artificially inflated demand and very poor quality.  But this didn’t happen. The market turned to Japanese cars (especially new upscale brands, Lexus and Acura. What was the result of the flight from Michigan? In the  80s & 90s, the US rebounded in both quality and cost because of two things: Competition and Free trade.

I am not fully convinced of my own argument, and like many people, I look for products sourced and made in America. But I haven’t found fault with the logic in free and open trade. There are some persuasive argument that claim that we lack a “level playing field” with our trading partners. They pollute, use slave labor, subsidize domestic industries or erect Tariffs to deter our goods from selling into their markets. Some of this reasoning makes sense, but not all of it. It's rare for me to admit that the “jury is still out” on this one, but in fact, I have not yet formed a bull-nosed, WildDuck opinion about these issues. Perhaps this is why I am more carefully buying American.

Dear reader: What do you think? Might the Buy American campaign have unintended consequences that dilute or contradict the economic goal? I invite your comment.

Increase gas tax as market cost of oil rises

When the cost of gasoline or oil rises (especially when it 'spikes'), a reduction of taxes causes great harm to consumers and taxpayers. In fact, we are best served by a rise in taxes tied directly to changes in the cost of oil.

In May 2011, a group calling itself National Taxpayers Union or NTU launched a $1.25 million campaign to fight energy taxes, like the fuel tax added to the cost of gasoline at the pump in most countries.* One of the group's less controversial public service announcements (or more accurately, a lobbying effort) consist of magazine ads and videos that encourage Americans to write their legislators and demand a roll back of gas taxes whenever market prices spike.

[caption id="attachment_574" align="alignright" width="300"] In supplier controlled markets, consumers can contain costs by magnifying spikes.[/caption]

I hate consumption taxes, especially the ones that target individual commodities or categories, such as alcohol, cigarettes, luxury purchases, or any system of import tariffs. They are a form of social engineering and they bastardize free markets. But when an energy consumer nation gives consumers breaks during periods of price spikes, the result counters the social intent. In fact, each time that oil prices rise, the best thing our government can do is to force them higher still! This may sound crazy, but when the supply of a commodity is controlled a few foreign cartels, it is no longer a commodity. Artificially lowering the consumer price by subsidizing the price simply stimulates consumption. It does not expand supply, and so the subsidy goes directly into suppliers' pockets.

Apparently, I am not the only one who thinks that lower gas prices is a bad idea. This month, Motley Fool columnist, Travis Hoium filed an Op-Ed entitled, 3 Reasons the US Should Want Higher Oil Prices. His analysis and opinion is articulate and adequately supported, but none of his reasons point to the fundamental economic reason that for a country that aspires to energy independence, oil should be taxed higher whenever the market cost of externally sourced oil rises. Let me spell it out (Hey! That's what I do in A Wild Duck!)

What happens if we lower the cost of a commodity to consumers in an effort to counteract a higher supply price? That's easy -- It doesn't take an Economist to answer! Since the supply is not increased, throwing a subsidy to the buyers "fuels" an even faster rise in prices and hands all that money to the supplier.

Let's say that C = Amount of fuel needed for critical purposes
. . . . getting to work, heating our home, manufacturing
Let's say that D = Amount of fuel needed for discretionary purposes
. . . . vacation travel, backyard BBQ, mowing the lawn, etc

Of course, with a limited personal budget, high fuel prices influence a consumer's decision to classify an activity as 'critical' or 'discretionary'. Additionally, the use of fuel is greatly affected by how efficiently you perform a task (taking a train to work instead of driving, vacationing nearby instead of far away, etc).

Foreign cartels wish to maintain high prices and high revenue, so they limit the foreign supply of oil. For them, it makes more sense to charge a lot of money for less product than to charge less money for a lot of product. If we consider again our classification of consumption into two categories, Critical and Discretionary, the supplier limits leave us with only enough fuel to support this much activity:

100%C + 80%(D)

Now if we counteract their production limits and insulate consumers from the higher cost, the formula doesn't change. We continue to use just as much fuel.

In a free market, limited supply causes prices to rise and this forces consumers to cut back on discretionary use. Some consumers with less money must cut back on critical needs. That's because some people can afford the keep buying and of course the cost of fuel rises.

In a free market -- at least on our side of the ocean, this normally leads to several things -- all of them very good:

•  Increase exploration and domestic production (Motley Fool covers this one)
•  Develop alternative fuels, especially domestic and environmentally friendly
•  Increase conservation:

• Reduce travel


• Turn off unnecessary appliances


• Turn down heat, insulating home or office

•  Change modalities:

• Carpool or use public transportation


• Reclassify some "Critical" uses as "Discretionary"


• Buy local (reduces wholesale transportation)


• Switch electric providers to avoid foreign sources

If consumers are suddenly subsidized when the cost of fuel rises, something terrible happens. Instead of producing more domestic energy, we are not at all affecting the supply. We are simply handing the foreign seller more cash — directly from the taxpayer to their pockets. And they didn't even ask for it! They raise the cost by $1 per gallon and we give them $2 extra. Heck, why not? It makes us feel good.

What happens if we increase taxes when suppliers raise prices? First, we benefit by all the good things listed above.

Second, since some foreign suppliers are not truly constrained in their production (that is, they have plenty of oil), they will keep costs low in order to sustain revenue. There are plenty of places this "cost reduction" tax can be inserted: at point-of-sale, at import, or in the distribution chain.

What do we do with the money that is raised by taxes? That's easy too. Give it back to consumers or use it to fund the development of energy sources that are domestic, inexpensive and environmentally safe.

This is how supply and demand should work. Of course, the government can still subsidize those in need. But do it in a way that doesn't bastardize market dynamics. As a society, we provide assistance to the consumers who cannot afford energy for critical needs, and not by handing money to the supplier (effectively, a reward for cutting production). In this way, we reduce consumption, increase domestic production and provide direct assistance to those who are less fortunate. The effect of subsidizing some buyers will force some other buyers to reduce discretionary use. For example, if some of the higher cost went to taxes, it could be used to help ease the consumers who can no longer afford the "critical" fraction of their use.
_____________
* Americans are taxed for automotive fuel at the pump: A federal tax of 18.4¢ plus a state tax that varies between 12~35¢. The average state tax is about 23¢/gal, so the typical American pays about 41½¢ tax on each gallon, or approximately 10%.

Investor Strategy: The Basics

Let’s start with a disclaimer: I am invested in capital markets and especially in my own ventures. But I never discuss investments beyond my family and an occasional paid professional (a tax adviser, accountant or estate planner). I am not a broker or investment adviser. Although A Wild Duck occasionally discusses economics in the “macro” sense (as in the previous post about Bitcoin), personal finance is definitely not within our purview. In general, our banner states the venue faithfully: Politics, Economics, Technology, Law and Social Phenomena.

Most proclamations have an exception. Today is no exception, but it comes close...

No. I am not about offer personal financial advice. But I will share with Wild Duck readers an off-the-cuff investment primer that I sent to a close family friend — let’s call her “Beth”. Beth is middle-age, alone, and has a substantial estate. Yet, she has never played an active role in directing her investments. In the past, her husband handled these affairs. Once on her own, she parked her assets in a low yield savings account. (Currently, these yield barely 1%).

Beth posed a very simple question. In fact the email had only one line:

Subj: Market Investing
How does one learn to play?

I write quickly, especially when the topic relates to things that I have pondered for years. So, I outlined a duck's-eye view of basic investor concepts, investment vehicles and trip wires. These are things that every novice should know. Of course, they are not simple text book facts. They are sprinkled with Ellery's bill-nosed, Wild Duck opinions. Again, don't mistake this for advice! It is my personal view of basic markets and investment vehicles and only as it might apply to a particular friend. Her age, net worth, family & career status, risk tolerance and financial objectives may differ substantially from yours.

If you want to skip the primer and jump directly to the method I use to value a company, then scroll down to [ 8C ], below. But if you are a novice, consider learning the basics.

_____________

Dear Beth,

“How does one learn to play?” This is a question that can be discussed for hours and hours...Months and months! The “experts” talk about investing with buzzwords:

• Financial objectives (for example, growth, security, tax savings, etc)


• Time Horizon: Long term, short term, cash conservation, College savings, etc


• Trade & Fund details: Load, commission, index tracking


• Fundamentals -vs- Technicals (I am very opinionated about this one!)
  Learn about the P/E ratios. Understand that markets are futures oriented.


• Strategy: Straddles, Saddles, Insurance


• Investment vehicles: Puts & Calls, Tigres, Spiders, Zero Coupon, Munis, etc


• Life Stage: Saving for retirement, already retired, planning to sell a house, divorced, putting kids through school? etc

These are just details. They don't influence strategy as much as paid professionals would lead you to believe. But let's begin with comments about 2 items on that list:

[caption id="attachment_235" align="alignleft" width="169"] Cramer likes a technical approach. Poppycock![/caption]

♦ The question of objectives, is hogwash! Asking if you want “growth” is like asking if the Pope is Catholic. We all want the same thing: “Make a lot of money and minimize risk”.

♦ If someone suggests investing on the Technicals (as opposed to researching Fundamentals), run away as fast as possible. They are soused with Jagermeister. They believe in snake oil and the Magic Fairy. Harken to them and ye' shall be a pauper. ¹

My personal advice...
_ _ _ _ _ _ _ _ _ _

1. You Will Lose Before You Will Gain
Don't put all your eggs in one basket and definitely don't bet the house! Start with small nibbles. Stay the course. Don't "double up" (See #4: Strategy).

First, you will lose a little money (so keep earning it at your regular job). Then you will lose some more! You will discover that the market never meets with expectations. You will see the folly of short term strategies and you will learn the tough way – from personal experience and your own risk. It is a way that you will never forget!

2. Find a 'Personal Groove' That Overcomes Emotion & Fits Your Risk Tolerance
Eventually, you figure out a pattern that works for you. This is not because your objectives are unique. (Everyone has the same investment objective: Put savings to use to make money). The reason that you need to discover a personal pattern, is because your style fits with your understanding of economics, your constitution for risk, and your patience to stay the course.

3. Sectors
Stay with stocks or funds that deal in markets that you know something about and that relate to your interests. Never get involved with a sector that is far flung from your personal education or experience, especially when purchasing or shorting individual stocks. (More about this in #5: Diversification). Even if you get very trusted and good advice about something that is not related to your field (uranium mines, for example), the market will someday change (perhaps far in the future), and you will be caught without any industry knowledge, because you don't read about that sector every day.

4. Strategy
You will hear about an investment strategy called "Dollar cost averaging". It is excellent advice for anyone. It helps you to weather the short term and midterm bumps while continuing to grow your investment. It takes patience and it forces you to resist getting caught up in fads beyond your means. Again, it is very good advice. I wish that I had followed this advice throughout my investment career.

5. Diversification
It is difficult to remain diversified if you invest only in markets with which you have intimate familiarity. (On the other hand, your career history is quite eclectic—so perhaps you can!!) So, I apply this conventional wisdom only to mutual funds. My individual stocks are clearly not diversified. The real issue here is that a lack of diversification dramatically increases risk. I wouldn't say it is a bad thing, but you need to be aware of this.

6. Management, Loads, Personal Service
I don't like any of these things. There will always be equal amounts of contradicting advice. Why? Because, for every investor that buys stock in a winning company, another investor loses on the other side of the transaction. You don't need advice, you need an understanding and tools.

7. Margin Investing
Definitely not for everyone. Big risk. Gives you leverage, but so does writing puts and covered calls – and with far less risk.

8. Understand How to Value Equity
...Don't Confuse a Great Company w/Great Value
Suppose you just bought a high-value product that everyone is talking about from a company with a hot reputation. (Let's call the manufacturer "Q", but think of the Apple iPad or the Tesla Roadster, or whatever works for you.) You learn to use it quickly and find that it performs better than you thought possible, and at a fair price. Should you invest in Q?

Next, you study the competitive landscape. You determine that products from other vendors don't provide a satisfying experience and the pundits agree. You also learn that competing products costs more to build – but sell for less, because everyone wants to own the product that you have. Would you invest in Q now?

It gets better: Q is growing fast, entering new markets, and has a great reputation. It's supply lines are solid and the founders health is much better than originally reported. There are no scandals concerning officers or directors. Now will you buy stock in this great company? Why not? Wait! There's more...

You research things that directly influence revenue & profit. You discover that competitors must pay Q a high licensing fee because they have solid patents. Their orders are growing fast and you want to get in during their best growth ever. Call your broker now! Right?

Not necessarily. I don't want this section, Basic Investor Strategy #8, to get too long, so I am going to cut to the chase. A company has at least 3 different values:

• Book Value: The value of its factories, tools, inventory, cash and other assets


• Market Cap: The cost per share times the number of shares outstanding


• Earnings Growth vs. Expectation: The hard part and the only part that matters!

A) Book Value
Book value has little to do with anything, unless the company is performing so poorly that it is at risk of being taken over and dismantled (i.e. so that the individual assets can be sold). Why doesn't book value matter for to an investor? Let’s say that a computer programmer working from home designs and sells software that everyone wants. He sells 1000 copies each day for $10,000. His total daily cost of running the business is a cup of coffee and an internet connection. The low value of his production environment does not detract from the value of his income. In fact, with the exception of adding a marketing budget (to acquire even more customers), his low costs add to the high overall return.

B) Market Cap
Market Cap refers simply the (share price) times (the total number of shares). It reflects the current value that existing investors place on the company, or more precisely, what they believe to be its prospects for future success. If you agree with them (and if you are primarily a speculator – as we assume), then you wouldn't be investing in the company. Get it?! Your goal is to find an undervalued company and then prove the other investors wrong.

Market Cap is based on short term sentiment that often has a great disconnect with the fundamentals of a company. Or in the case of Q, the market cap may already be pumped up very high because everyone believes it to be a great company and expects the share price to keep growing faster and faster. In this case, we say that good news has already been factored into a high valuation.

What if the share price multiplies out to a market cap that is in the stratosphere? To make a long term gain, the company would have to own the earth within a few years. With overvalued shares, even a great company may have nowhere to go but down!

C) Earnings Growth vs. Expectation
This brings us to the only factor that matters when choosing to invest in an individual company. ² I don't really have term for this one, but it is essentially this:

Anticipated growth in future earning
—vs—
the expectations of other investors

Translation: Do you believe that the current share price is undervalued? By “value”, I mean, do you believe that during the period you expect to hold the stock, other investors will increase their opinion of the company's future prospects?

To answer this question, you must really do some research. Lots! And it must be your own personal research; Not the opinion of others. If an influential opinion or popular consensus is already surfacing, then you have lost your edge. You can no longer win at proving the market wrong. So how do you begin your research?

You will need to know the market cap, the P/E ratio (look it up), the competitive landscape, the safety of supply lines, future product plans, and current product fads. Even during the very high growth period for Crocs or for Cabbage Patch Kids, shrewd investors realized that these were product fads. It is very unlikely that the companies behind these products could diversify and conquer new markets with the rapid penetration they recently enjoyed. So, the likelihood of sustaining the growth is low. Finally, you must add up all of this data and weigh it against an educated guess as to whether the company will keep growing without excessively watering down that growth with simultaneous growth in the number of shares.

That was the end of my letter to Beth. Of course, the last paragraph contains a lot to ponder. I suspect that it will prompt a lot of questions and comments from Wild Ducks, and it is as far as I wish to take this primer. I intended only to spark contemplation and move you toward an entrance.

¹ If TV financial advisor Jim Cramer is reading this Blog, forgive me. as with Bill O'Reilly, the blather (or your technical approach) makes for entertaining television. It is not a viable investment strategy. Not even for the short term.

² The bold claim that "This is the only valuation that matters" is based on some assumptions. In this primer, I am focusing on growth medium term, growth investing and ignoring very legitimate investment strategies, such as dividend investing, mutual funds, bonds, or applying a disciplined approach such as dollar cost averaging. I believe that all of these are effective approaches to market investing. But in my discussion of picking stocks, I am talking about growth stocks and market timing.

Bitcoin: Can cash have value if it isn't real?

It's likely that early man had no widely accepted currency. They dealt in the food they hunted or gathered, and the clothes they fashioned from whatever materials were available. Perhaps some individuals offered services, such as labor, transportation or healing. But without currency, they weren't buying and selling these things. Instead, each transaction was a gift or a trade.

Trading is good, but it is difficult for a trade to involve more than 2 parties. Also, It's difficult to save for a rainy day. Food spoils quickly when there is no refrigeration.

Economies built on private trades

• Limited to private transactions.


• No exchange/settlement: An Inefficient market


• Difficult to accumulate wealth


• Doesn't facilitate governments or public works projects

Eventually various forms of cash began to emerge. According to the comic strip, B.C., caveman traded clams for goods and services. That's not far from what historians tell us. Beginning at around 1200 BCE, the Chinese exchanged the shiny shells from a Pacific sea snail for goods and services. For centuries Cowry shells were accepted as a portable “coin” because they were both rare and impossible to counterfeit. Historians think that it may have been the first medium of exchange.

"Medium" is a good word for money, because it is an intermediate layer between things of value — the thing that you sold today and the thing that you will buy tomorrow.

Was the Cowry shell really the first form of currency? It’s difficult to look further into the past, especially into events that may have occurred before written language. But we can be certain that with the rise of central governments, currencies were coined by banks and by nations. But this gives rise to two classes of currency. Things of inherent value, like gold, and things that are valuable because someone says that it is valuable (dollars).

Cowry shells are like gold. They are portable and honored everywhere, just like a coin. And yet they are not minted by a central authority. Instead, they have value, as long as the new supply is limited by natural law, and as long as individual traders believe that their suppliers will continue to desire them. With all monies – clams, gold or government-issued cash – when a majority of productive individuals agree that coins have value, it becomes possible to save and to time shift assets. For example, if you produce clothes – but you aren’t immediately hungry – you can sell your clothes and accumulate wealth. Unlike asparagus or shoes, currency is fungible and it doesn’t spoil. Of course, it is also easier to tax.

Let’s jump forward several millennia. Today, people buy and sell with dollars, euros, pounds, shekels, Zlotys and Yuan. Each currency is minted by a government and backed by either a precious asset (typically Gold) or by the promise of a central bank or government. But wait! Few currencies in circulation today are backed by anything more than the promise of a transient government. And most of these governments are saddled in debt. They have no ability to make good on their promise. The only reason that money in your pocket or bank has value today, is because you feel reasonably certain that vendors will treat it with value tomorrow. Given the dearth of underlying assets, the value of money is about as far from "real" as one can imagine.

Putting your faith in money is terribly risky especially in the 21st century. It is rapidly eroded by inflation and debt. It is easily taxed. It is manipulated by day traders and emerging nations, and it's value is dramatically influenced by energy, and political/social policy.

Before we move on to virtual currency, let me point out that the "virtual" part is nothing new. We already trust computers to keep track of our savings and we prefer bank statements over folded paper in our wallet or mattress. Very little of the money you spend is traded in the form of paper or coins handed from one individual to another. Credit cards, checks and automatic debits bypass the cash stage. Few people use cash to pay taxes, purchase a home or car, or even to buy groceries. Instead, credit cards and mobile payments are accepted everywhere, even at McDonald's and at the post office.

And investing has become even more virtual than buying. When you purchase stocks or bonds, the entire transaction is virtual. You digital cash (computer bits) is converted into a new row on a spreadsheet. This row of characters and numbers reassures you that you own a tiny sliver of a mutual fund in Omaha. This fund, in turn, owns a fraction of 1400 companies or is the beneficiary of municipal debt (more computer bits). It can’t get more virtual than that. Can it? Well, yes. In fact, it can!

Even though money you spend today is virtual, it is still minted by a government (or in the case of Hong Kong, by a bank). You have no idea how much of the stuff they print and how it is distributed from the printer. The value you perceive in your pockets and all of your accounts is based on trust. So who are you trusting? Is it your own banker or business partner. Not on your life. You are placing your trust in the same entity that taxes you and the entity that can't balance its own checkbook.

Bitcoin is different. First, it is totally decentralized. No bank or government is required to validate the coin, record a transfer, or to determine if a virtual coin was spent twice by the same party. And get this: New coins can be "minted" by any user, but the process is inherently limited and trustworthy. Moreover the more that is minted, the more difficult it becomes to mint additional currency. Eventually, the total amount in circulation will level off to a known and verifiable number of coins.

Confused? Of course, you are confused. But, believe it or not, there are already currency exchanges for Bitcoins. They are even bought and sold on eBay. Why? Because Bitcoin circumvents government manipulation. It also deters taxation, tracking, inflation and... Well, you get it. Bitcoin comes pretty close to a perfect currency.

Bitcoin: A virtual, decentralized, trustworthy currency

In my dreams, I fancy myself as a futurist. I like to think that I could hold my own with Ray Kurzweil, Esther Dyson, Bill Joy or Alvin Toffler. Putting myself into that mold right now, I would speculate that Bitcoin or something built much the same way will quickly subsume the world's economies—perhaps even in the next 15 years. The fallout will be seismic, because governments will need to base taxes on real estate and transaction fees rather than income, property or savings. After all, it's difficult to hide land or a home, and it's pretty easy to issue a speeding ticket or charge for a marriage license.

After years of buying from China, time to pay the bill

I wrote this in April 2011 as feedback to this article in PC World.
__________________________________________________________

After decades of buying from China, it’s time we paid the bill.

Step back from rhetoric & ideology. What, exactly, do we expect the Chinese to buy with all the dollars that they’ve amassed? What happens if we try to dictate their options? –Making available just a few items at the bazaar?

Most Americans want balanced trade. Trade is balanced by encouraging foreigners to return dollars to America. That means purchasing goods & services or investing (purchasing equity or debt). But purchasing debt isn’t real balance. It postpones and magnifies a trade imbalance.

The Chinese have built vast quantities of products that we consumed for more than 30 years. For whatever reasons, they have built them cheaper and responded quickly to consumer demand, and with sufficient quality and style that we loved acquiring them.

Now China has pockets stuffed with dollars. There are so few places that want those dollars, the logical recourse it to spend before it depreciates. That’s logical. Getting them to use those dollars is what we want.

The US exports movies, airplanes, weapons & software, and we charge foreigners to attend our Universities. On the international stage, that about sums our brag sheet. But when we consume trillions from foreigners, do the promissory notes that we issue (“dollars”) limit them to these few commodities? What else can the Chinese purchase that isn’t manufactured closer to home, better, and in larger quantities? They export the really big ticket items themselves--like skyscraper contracting, oil drilling, nuclear technology!

When a foreign corporation or government wants to purchase something significant from the US, suddenly we stop yelling “Buy American” and we start yelling “Security Threat!”. Poppycock! If we create such enormous red tape that international telecom players cannot acquire or invest in one another, we reduce liquidity and further weaken our dollar. Face it: Our start up companies are commodities as certainly as a retail copy of Windows, a Boeing jet or a patent portfolio. When we turn up our nose at healthy interest in intellectual trade or infrastructure acquisition, we are not protecting our interests. We are simply informing trading partners that they were fools to trust us, and that the dollars they stockpiled can be redeemed only in Hollywood films.

It’s natural to be skeptical. China is controlled by an authoritarian dictatorship. Citizens lack social & political freedom. But don’t be misguided about their economy – both within and abroad. It is lubricated by capitalism and is more adaptive and free-wheeling than our own. Whatever their shortcomings, we accepted these when they were selling. We must also allow them to buy. Our technology plays are the only thing on our menu.

Conclusions:

• A) If we refuse to allow the Chinese to repatriate dollars or offer them only the local goods of our choosing – typical of a Banana Republic – then they will dump our dollars and also stop buying our debt. It would crush our economy in a heartbeat.


• B) If we allow those with large stockpiles of our dollars to use them as they see fit, the dollars will return to build factories, create jobs, and produce good, old fashioned innovation. But this won’t happen with newly printed dollars. It doesn’t work that way, because that weakens both parties and makes our factories unattractive. It must be the dollars that we willingly handed over for TVs, computers, shoes, toys and even building materials. We must accept that we owe China—big time! For decades, we passed off pictures of George & Ben in exchange for tangible goods. We knew the Chinese crafted high tech goods for less and that the political system was repressive. But we looked the other way. We really wanted those things! Whether you like their government or not, we promised to expend future time and resources supplying their children with commensurate goods.

Why does China say "America works for us"
Click image to learn why (video = 1min)

This video was commissioned in an effort to defeat Obama’s 2010 universal health care bill. It has terrific shock value. It depicts what China believes to be our economic weakness. I won't comment here about health care or stimulus economics. It’s unrelated to my point. But the video also depicts what Chinese believe to be their imminent destiny, perhaps at America’s expense.

They deserve all of the positive things they have earned. Although it’s natural to whine and complain about an uneven playing field, and our past glory (Automobile assembly, television, the moon landing and the Internet), China is winning in the global economy and any trade in which we engage is, by definition, fair. In fact, the only uneveness in the playing field of international trade is just the opposite of popular perception: It has been tipped in our favor for the entire 20th century!

We must get it through our heads that capitalism is not a contest! This simple truth is often overlooked. The emergence of China as an economic superpower is a good thing. Not just for the Chinese, but for every American. If we keep our own ship in order, the result will be an abundance of goods and services from both sides because we will have affluent trading partners, broader access to labor and markets, and eventually, democratic trading partners.

- Ellery Davies|
Ellery clarifies law and public policy. He is a frequent columnist and TV commentator.