The Road To Prosperity

[The Rabbi]

I have a young (21) friend staying with me from Germany for a couple of months.  He is interested in business so we talk a lot about it.  It seems in Germany almost nothing can be done without getting permission from a bureaucrat and paying a fee.  Not unrelated their unemployment rate is over 11% and the government is running big deficits.
This got me thinking about how countries succeed economically.  Really it isn't that hard and the facts are or ought to be well-known.  It takes, imo, three things:

1) Rule of Law.  This is the biggie.  It means that laws are made and enforced equally, no matter who the litigant is.  We see it collapsing now in Russia, and I expect their economy to go likewise.

2) Limited Regulation.  People should be able to start and run businesses without much interference from the gov't.  Obviously you need some kind of rules.  But they ought to be at a minimum, easy to learn about, and easy to comply with.  I don't know what OSHA regs run these days but I would bet many pages in the Federal Register.

3) Low taxation.  People need to have an incentive to work hard.  If tax rates are too high then not only will people not work (why bother?) but the gov't won't collect money either.  Progressive taxation punishes the most productive people--why would you want that?

The problem, I guess, is that someone can always come up with good reasons why esp the last two need to be compromised on (for the children, of course).  But every move that takes away from them also weakens the economy and limits options and freedom for people.

[K Frame]

Everyone keeps saying that the European Union is going to eat America's economic lunch.

I just smile and think about the hundreds of thousands of new lines of regulations that the EU Congress is pushing out on businesses.

It seems as if every time they issue a new mass of red tape designed to "level" the playing field, more European workers get bumped out of work.

Unemployment rates in most of Europe are currently more than twice the American rate, and the per-capita productivity levels are far less than what they are in the United States.

[Art Eatman]

My son has a small business in Bavaria.  I get bits and pieces of info about the red tape he had to deal with to get it going.

My wife had a small manufacturing business here in south Georgia.  There is no way I could have dealt with all the red-tape BS she had to cope with.  Think bombs and university towers and such.

I've said that post-WW II we've been working hard to play catchup with the European red-tape structure.  LBJ's Great Society gave us a giant leap "forward", and ensuing Admin/Congress efforts haven't helped.

I guess that at some point, we'll be so safe that we'll all be broke.

Art

[doczinn]

1) Rule of Law.  

2) Limited Regulation.  

3) Low taxation.

While I wouldn't necessarily agree with your priorities, you've pretty much nailed what is necessary for prosperity.

[Guest]

I like Richard Maybury's Two Laws:

http://www.chaostan.com/

(1) Do all you have agreed to do. This is the basis of contract law.
(2) Do not encroach on other persons or their property. This is the basis of tort law and some criminal law.    These laws are essential for an advanced society. The first gives rise to trade and specialization of labor. The second creates peace, security and goodwill.
========

Invasive bureaucracy at all levels of government, strangling levels of taxation, burgeoning entitlement class, adventurism abroad, an inflating currency, growing trade deficits, shrinking access to energy, increasingly costly medical care- we have so much to look forward to...

lpl/nc

[El Tejon]

I recommend "All the Trouble in the World" by P.J. O'Rourke to those pondering this question.

[The Rabbi]

Invasive bureaucracy at all levels of government, strangling levels of taxation, burgeoning entitlement class, adventurism abroad, an inflating currency, growing trade deficits, shrinking access to energy, increasingly costly medical care- we have so much to look forward to...

lpl/nc

This could easily have been written c.1978.  It wasn't true then.  It isn't true now.

[Art Eatman]

Well, let's see now, Rabbi:]

"Invasive bureaucracy at all levels of government"

OSHA, ATF, EEOC, EPA for starters.  Then add in all the local regs and bureaucrats.  Ever run a bar/nightclub/restaurant?  I have.

"strangling levels of taxation"

School taxes.  15.3% FICA on wages.  Sales taxes.  The "Stray" taxes such as those on your phone bill.  Excise taxes.  Fees, ever-increasing fees, whether for a visit to a state or national park, or for auto license plates.

A few year back, I played "let's pretend" on taxes:  I pretended I was still 40 and in the same job I'd had in the past but with the more-current numbers.  For a guy in Austin, Texas, at $50K, a house, two cars and a couple of kids around high school age, the total tax take for all levels of government was right at 47%.  (Federal income tax ain't the problem.)

"burgeoning entitlement class"

Medicaid and welfare numbers are declining?  I don't know if retirement folks are included, but a) they'e entitled, and b) there are ever more of us.  I note that GM's retirement program has it on the verge of financial collapse--and it ain't alone.  "Aging society", remember?

"adventurism abroad"

Show me our national interest in the Balkans, or in our membership in NATO.

"an inflating currency"

$550/oz now; $35/oz in 1973.

"growing trade deficits"

Up to $900 billion a year now, and climbing.  Worldwide, financial folks are nervous.  Well, they say they're worried about what's called "unsustainable".

"shrinking access to energy"

While there is no need to worry about electricity, we're sure in deep doo-doo for life as we've known it for transportation energy.  Politics affect that as much as the number of oil wells.  If Iran gets picky about who goes through the straits of Hormuz, life would be real interesting.

"increasingly costly medical care"

I note that my recent chest X-ray was $141.  Not bad for what was $40, not all that many years ago.  Office visit at $95, vice $15 in 1983.

So either medical costs are going up, or the currency is inflating.  Take your pick, but you sure can't have it both ways.

, Art

[Justin]

Tim Harford: Why Poor Countries are Poor.

This short article pretty much sums it up.

[The Rabbi]

Well, let's see now, Rabbi:]"Invasive bureaucracy at all levels of government"

OSHA, ATF, EEOC, EPA for starters.  Then add in all the local regs and bureaucrats.  Ever run a bar/nightclub/restaurant?  I have.

"strangling levels of taxation"

School taxes.  15.3% FICA on wages.  Sales taxes.  The "Stray" taxes such as those on your phone bill.  Excise taxes.  Fees, ever-increasing fees, whether for a visit to a state or national park, or for auto license plates.

A few year back, I played "let's pretend" on taxes:  I pretended I was still 40 and in the same job I'd had in the past but with the more-current numbers.  For a guy in Austin, Texas, at $50K, a house, two cars and a couple of kids around high school age, the total tax take for all levels of government was right at 47%.  (Federal income tax ain't the problem.)

"burgeoning entitlement class"

Medicaid and welfare numbers are declining?  I don't know if retirement folks are included, but a) they'e entitled, and b) there are ever more of us.  I note that GM's retirement program has it on the verge of financial collapse--and it ain't alone.  "Aging society", remember?

"adventurism abroad"

Show me our national interest in the Balkans, or in our membership in NATO.

"an inflating currency"

$550/oz now; $35/oz in 1973.

"growing trade deficits"

Up to $900 billion a year now, and climbing.  Worldwide, financial folks are nervous.  Well, they say they're worried about what's called "unsustainable".

"shrinking access to energy"

While there is no need to worry about electricity, we're sure in deep doo-doo for life as we've known it for transportation energy.  Politics affect that as much as the number of oil wells.  If Iran gets picky about who goes through the straits of Hormuz, life would be real interesting.

"increasingly costly medical care"

I note that my recent chest X-ray was $141.  Not bad for what was $40, not all that many years ago.  Office visit at $95, vice $15 in 1983.

So either medical costs are going up, or the currency is inflating.  Take your pick, but you sure can't have it both ways.

, Art

Could also have been written c.1978.  I thought you were old enough to have more perspective.

[Art Eatman]

Well, Rabbi, I read your comment, "This could easily have been written c.1978.  It wasn't true then.  It isn't true now." to mean that what I've seen happening, ain't happening.

It's happening.  What's "perspective" got to do with it?

Art

[The Rabbi]

Art, inflation is running about 3.5% today.  In the late 1970s it was 14+%.  In the late '70s there were very few states where you could CCW.  Today there are, what, 37?  In the late 70s airlines and telephones were highly regulated industries.  Today that is a thing of the past.  In the late 70s we were getting our butts kicked by the Russkies all over the world.  Today we have to help them.
How much did you pay for a long distance call in 1980?  How much for a computer and what could it do?  What did an airline ticket cost then vs. now?  How long will a new Ford or Chevvy last today vs. then?
The number of industries deregulated is pretty large.  Is there too much regulation still?  Of course.  Gas is cheaper today in inflation-adjusted dollars than in the 1960s.  I could go on and on.  Information about companies I want to buy stock in was expensive if I could get it at all in 1980 and today it is available free and instantly.
It is easy to sit around and moan about this stuff.  I'd rather get over it and do something productive.

[Nathaniel Firethorn]

In the late 70s airlines and telephones were highly regulated industries.  Today that is a thing of the past.

And airplanes were at least somewhat pleasant to fly on and the phones worked and Bell Labs was inventing groundbreaking stuff. Ya gain something, ya lose something.

Frankly, I think American industry's concentration on short-term profit ueber alles is the main reason why the country is being offshored to Cheapistan. It's easier for an individual to profit by wrecking companies than it is by building them up.

- NF

[grampster]

NF has made a prescient comment, "Ya gain something, ya lose something."  That is so true.  I also agree regarding the short term gain thing.  We are losing much in the long run over short term gratification.

American culture is all about instant gratification.  Our industry has grasped this concept as well.  Much of it probably has to do with the fact that a lot of Americans are investing in the market, either on their own, or with 401k's.  This is a good thing, for sure, but we lose something at the same time...long term corporate vision.  Hell, turn on the radio and TV and your getting stock market results on the tens.

The worst place for this cultural paradigm to have gained a foothold, imho, is in our political arena.  Instead of being concerned about our long term national life, well being,  prosperity, cordiality, and all the other good things our national two party system blesses us with, they posture and quibble and look for ways to divide us rather than unite us in order to get their faces on the tube.

  I listened to an interview of the Colonel that is in charge of Gitmo the other day.  (Most of what he said was stunning in that most of us don't know about the things he was talking about as to what really goes on there)  He mentioned that Teddy Kennedy had been at the prison and had his eyes opened as to the reality of what was occuring in Gitmo.  The Colonel stated that Kennedy was stunned and surprised at the condition the prisoners were in and how well they were treated.   The colonel remarked that as soon as Kennedy was back in the states he was ranting and railing about how Gitmo was awful and was a torture chamber.   Throw in a for profit media that puts short term profits driven by sensationalism ahead of facts and it is not surprising that they have a left wing bent.  (I don't have the answer for this, as I'm not anti profit.  I just guess I have an elevated sense of ethics and fair play.)

I think under the prevailing set of circumstances, we might just have lost WW II.

[Art Eatman]

Rabbi, maybe we're talking at cross purposes.  I agree as to the benefits of deregulation of industries such as e.g. the airlines and natural gas.  But I'm talking about the incredible increase in regulations that businessmen must follow in the course of daily business, which is a different thing entirely.

A lot of the alphabet agencies existed in 1978, but that doesn't mean they've stayed static as to the regulations.  They keep writing new ones, as I watched in my wife's business from 1989 until her retirement in 2003.

An inflation rate of 3.5% means a doubling in costs every 20 years.  To have replaced my 1985 4WD PU in 2005, rather than $19,000 less about $2,000 trade, I'd have looked at some $24,000.

I won't even get into the costs of land and of houses.

Sure, many prices are static, or even cheaper.  But the same government people who utter the numbers on inflation rates have also told us that the middle class has lost buying power over the last 30 years.  Further, between December, 2003, and February, 2006, non-farm wages have risen 0.1 to 1.7% on a year-to-year basis.

Daily overhead items like vehicle maintenance have seen costs rise at a much faster rate than average inflation.  Same for medical costs, although much of that is due to the much better technology.  However, I stand by my earlier comments about government involvement in medicine after 1983 and the paperwork costs created thereby.

I stand by my comments about the Balkans and about energy, as well.

Art