Trump Tariffs and Trade War With China

George Noga
Imports are what make us well off; exports are merely the cost of obtaining imports.
Trump Tariffs and Trade War With China
By: George Noga – May 6, 2018

          US trade with China is patently unfair. They have higher tariffs, use cheap labor, subsidize exports and steal intellectual property. They also manipulate their currency, but that is our topic for next week. Our 2017 trade deficit with China was $340 billion. Americans’ fierce belief in fair play accounts for the popularity of Trump’s tariffs on the Middle Kingdom. Whether or not such tariffs are wise is the topic of this post.

       Economists are in lockstep that expanding markets to their maximum potential size (global) optimizes specialization, economies of scale and comparative advantage thereby generating more wealth for everyone than tariffs or trade barriers. Imports are the things we want to eat, wear or use like bananas, athletic shoes and iPhones; they make us better off. Exports are merely the price we pay to obtain imports; they do not make us better off because they are eaten, worn or consumed in other nations.

        As first conceived by Adam Smith and later espoused by Milton Friedman, the objective for any nation is to get the most possible imports with the least possible exports. Trade occurs between people, not countries; it is voluntary and non-coercive. Living Americans eat the bananas, wear the shoes and use the phones, not government. Our households, just as our nation, are better off getting more in and sending less out. Grasping that imports are desirable is the key to understanding international trade.

       Trump’s rationale for tariffs is that because America imports $525 billion from China while they import only $185 billion from us, they have more to lose in a trade war. Once it is understood that imports are what is truly desirable, living, breathing Americans would lose $525 billion in imports versus only $185 billion for the Chinese. Humans in both countries lose, but American humans lose more. Moreover, the Trump tariffs ultimately are paid by Americans as higher prices for imported goods.

        Looking beyond China, 138 countries run trade deficits with the US; in half those countries the deficit is 500%. Don’t each of those nations have the same brief against us as we have against China? What if all those countries imposed tariffs on American goods? It is normal for a country to have both trade surpluses and deficits. Similarly, your family runs trade deficits with your grocer and power company but enjoys countervailing surpluses with your employer and your investment company.

        When China sells us goods, we pay with dollars. They use $185 billion to buy things from us. They also buy goods from other countries – in many cases from the 138 countries that run trade deficits with us. Many of the dollars we send to China thus find their way back to the US. Finally, China uses some of its trade surplus to purchase US assets and to buy Treasury securities ($1.2 trillion) to finance our national debt.

       What if we imposed huge tariffs on bananas such that it would be profitable to build massive hothouses to grow them in Minnesota? It certainly would create jobs and capital investment. The price of bananas would skyrocket and American consumers would suffer immensely. Would anyone argue that banana tariffs are a wise move?

        The rise of humanity began and blossomed due to trade and it remains so today. Milton Friedman believed Americans would be better off if we unilaterally abolished all tariffs and trade barriers – even if no other country reciprocated. The United States has run 42 consecutive years with a trade deficit. Where is the harm?

        In times of war, countries blockade their enemies to prevent them from trading. Tariffs restrict a nation’s own citizens from trading; hence, countries imposing tariffs harm their own people in the same way they punish enemies in time of war.

Next: The final part of our pivot to China – currency manipulation (horrors)

China: Economics, Demographics and Politics

George Noga
Is China an economic tiger or a pussycat doomed by its demographics and politics? Given enough cavemen, it is possible caveman GDP could surpass that of the USA.
China: Economics, Demographics and Politics
By: George Noga – April 29, 2018

      To hijack popular parlance, we are pivoting to China. This post presents MLLG’s inimitable perspective about China’s economy, demography and politics and it isn’t what you read in the popular media. Upcoming posts will address the Trump tariffs, China’s balance of trade with the US and whether or not the yuan is undervalued.

       Americans have been swamped with hype about China’s economy overtaking ours. Let’s look at the numbers. US GDP is $19.8 trillion or $61,700 per capita, 5.5 times the world average, 8th best in the world and highest of any major nation. China’s GDP is $12 trillion or $9,400 per capita, 17% below the world average and 74th in the world behind Mexico and Equatorial Guinea and similar to Botswana and Gabon. Also remember that China’s reported economic data are widely regarded with skepticism.

       China’s economy is 61% of ours but, as the hype goes, they soon will blow by us. Let’s test this assertion. Assume the US economy grows at 2.3%, a full percentage point below its historic average. Further assume China’s GDP grows at 4% until 2030 and then 3% thereafter. Under that scenario, China would require 55 years to pass the US in nominal GDP. Even then, its GDP per capita would be only 25%-30% that of America’s. If there were a trillion cavemen, each producing $20 a year, caveman GDP of $20 trillion would surpass America’s; however, they still would be living in caves!

       Another reason China won’t overtake the USA is demographics. Gender selection due to China’s one-child policy resulted in 140 million more men than women. Their 1.16 fertility rate is lowest in the world and will decimate the population in the next generation. The shortage of women creates social and political unrest. China’s ageing demographic already has resulted in a shortage of workers and an army of the elderly.

      Politics is another source of China’s woes. All empires throughout human history have broken up. China is an empire; therefore, it too will break apart. China doesn’t even have a common language; Cantonese and Mandarin are as different as Portuguese and German; people from different parts of China use broken English to communicate. Over 150 million people in China are not Chinese; there is Tibet, Manchuria, Inner Mongolia and the Uighurs. There is a significant and growing Muslim population in China’s outer western provinces, which is ruthlessly suppressed. Communists still govern with an iron fist; the internet is censored; and there is no political freedom.

     China is not nearly as formidable economically as the chattering classes and the mainstream media would have you believe. Its GDP will never catch the US and some time, in the not too distant future, it will begin to lose ground. Its demographic imbalance is a ticking time bomb and inevitably will result in chaos and social unrest. China will be the only country in history to grow old before it grows rich. Communism won’t survive as economic freedom inevitably leads to political freedom.

     China will experience increasing entropy economically, demographically, politically and socially. Its decline is ineluctable. America is a great nation because its people chose to be part of it. China is an empire of unwilling people of different ethnicities and languages held together by brute force. As a consequence, the Chinese empire, like all others throughout the history of mankind, will shatter amidst ethnic strife.

Our next post continues our pivot to China as we address the Trump tariffs.

The Climate Industrial Complex

George Noga
Climate change is not about warming, carbon or even renewables; at root, it is a ruse to confuse and to beguile people into enacting the radical green agenda.
The Climate Industrial Complex
By: George Noga – April 22, 2018
          Few Americans know what you are about to read. I became aware of parts of this saga only during the past year despite writing about climate change for 10 years. It is an incredible but 100% true story. Buckle your seat belts and hang on for a wild ride.

        Once upon a time, an existential climate crisis threatened Earth. Scientists were certain they had found the cause and that it was man-made. Alarmed environmentalists and credulous politicians quickly fell into line. International conferences produced a United Nations convention, followed later by a protocol. Lakes, rivers and forests were dying and a war on coal was declared. Public alarm was intense; in Germany, hysteria reached fever pitch. The media sensationally asserted that the planet was dying.

       The National Academy of Sciences and the EPA said the evidence of its cause was “overwhelming”. The president created a blue ribbon scientific working group to study the problem and signed international agreements. When the next president expressed skepticism, 3,000 scientists protested. Cap and trade legislation was in Congress.

       Then came a huge surprise! The blue ribbon scientific working group found that the science was all wrong. The true cause of the problem was identified, the problem fixed and the planet saved. The EPA never admitted it was wrong; they suppressed the evidence and used dirty tricks to discredit the scientist who proved them wrong. EPA still clings to the discredited story and still spends money on the disproven cause.

       To end your suspense, the above story is about acid rain, which was but one part of a long train of junk climate science beginning with the nuclear winter panic in the 1950-60s. Then came acid rain in the 1970s, followed by global cooling and the ice age. Next came global warming which morphed into today’s climate change paranoia.

         All these episodes share a common playbook. An existential threat to the planet is conjured; scientists are certain they know the cause; international organizations jump on the bandwagon; the media sensationalize with apocalyptic hype; the public panics; politicians demand more money and power; and anyone skeptical is branded a heretic. They have one other significant thing in common: they have been proven wrong about everything. My study of global warming leads to two unshakable conclusions.

    Man’s role is somewhere between non-existent and inconsequential. A peer reviewed study (Fyfe, Gillett, Zwiers) of 15-year rolling average temperatures shows Earth returning to its long-term secular warming pattern of .7 degrees Celsius per century; i.e. the warming is not man-made. The evidence against human causation is strong and includes warming throughout the solar system, no warming for 20 years, failure of all climate models, most warming occurring before 1945 and much more.

       There is something much bigger going on. Climate change is misdirection having little to do with CO2, warming or renewables. It is maskirovka by radical leftists and environmentalists and their fellow travelers in science, media and politics to beguile and to scare people into enacting their agenda. They have used the same playbook for everything from nuclear winter to climate change. In his book Green Tyranny Darwall (see source note) labels all these groups the climate industrial complex.

       This Earth Day take a moment to ponder nuclear winter, acid rain, global cooling and the coming ice age. The same people and organizations in media, science and politics, i.e. the climate industrial complex, were certain about all these crises and they were dead wrong every time. They are just as wrong now about man-made warming!

Source Note: Some of the data used in this post were taken from “Green Tyranny” by Rupert Darwall. If you are interested in this issue, I wholeheartedly recommend you read this book.

Beginning next week MLLG pivots to China and the Trump tariffs

It’s Getting Better All the Time

George Noga
The environment is the best it has been in at least 75 years and is getting better all the time.   
It’s Getting Better All the Time
By: George Noga – April 15, 2018

       We will celebrate Earth Day 2018 on April 22 with a special posting; today’s posting is a prequel. Since Earth Day began in 1970, Americans have been bombarded with ersatz horror stories even though every significant measure of environmental well being is the best it has been and is getting better as well documented in numerous publications including: It’s Better than it Looks, It’s Getting Better All the Time, Enlightenment Now, Progress, Abundance, Rational Optimist and The Moral Arc.

        Following are but a few of the metrics that are doing great: deaths from extreme weather, ambient air quality, emissions per GDP unit, streams suitable for swimming and fishing, oil spills, wastewater treatment, energy use by GDP unit, auto fuel economy, food production, commodity prices, timber growth and use, environmental quality and natural resource abundance. And the list goes on and on.

        Malnutrition in the US (and globally) is at its lowest level in history. Virtually all hunger that remains is due to distribution failures and government corruption – not to lack of food. Obesity in the US, and increasingly worldwide, has supplanted hunger as the more significant problem. Not only do we now feed an astounding 7.6 billion people, we accomplish the feat with a much smaller environmental footprint due mainly to GMOs. This doesn’t stop environmental alarmists from incantations and screeds warning of population growth and demonizing GMOs. Note: The population growth rate already is falling globally and will turn negative by end of the century.

        Despite the epic proliferation of people and the concomitant improvements in their standard of living and consumption, the earth’s minerals and resources are more abundant than ever before – and are getting more abundant all the time. The price of virtually all resources is falling, signalling that we are finding and replacing them faster than we are using them. Remember peak oil? On past Earth Days, scaremongers in science, media and politics warned we would run out of oil by 2000; instead, energy is in worldwide oversupply (really, there is a glut) and prices have plunged.

        Brace yourself for the soporific palaver you will be force fed during the coming week by the Chicken Little triad of media, progressives and environmental wackos. They will regurgitate their imperious, dog-eared shibboleths about greedy corporations spewing carbon, polluting and despoiling the environment. They will rant about frankenfoods, population growth and, of course, their favorite whipping boy (or should it be whipping person?), climate change. But you know the truth, i.e. every metric of environmental well being is the best it has been and is getting better all the time!

      As for us at MLLG, we have written an uber-special Earth Day post to be distributed on Earth Day 2018, which is next Sunday, April 22. Its topic is an environmental issue we never before have written about since these posts began in 2009. It should be a real eye opener; please be sure to read it on Earth Day!

On Earth Day (April 22) we will have something truly provocative for you.

Business Ethics and Social Responsibility

George Noga
Profit is the appropriate measure of a corporation’s value to society.
Business Ethics and Social Responsibility
By: George Noga – April 8, 2018

      A professor I know teaches corporate ethics and social responsibility at a local university. She asked me to provide a video for her class, knowing my presentation would be provocative and in sharp contrast with videos provided by other business leaders; I did not disappoint. Following is a lightly edited transcript of my video.

Question from professor:  You have done considerable service for the community; does this mean business leaders have a responsibility to give back to the community?

I did community service because I wanted, not due to some wrong-headed cliche. The responsibility of business is to earn profit; by doing so it serves the community. Apple makes a billion people more productive and enriched; they do more good going about their business than they ever could through community service. The term giving back implies something has been taken. People who should give back are those who have taken; that’s why criminals are assigned to perform community service.

Question from professor:  Should companies do nothing in way of community service?

Companies should act in their self interest. Their mission is to provide the best possible products and services to consumers and value to shareholders; by accomplishing this they enrich the community. If businesses choose to sponsor community projects, they should do it for the right reason – not because of some platitude from a can.

Question from professor:  Should companies have a written code of ethics?

Restaurant washrooms have signs “Employees are required to wash their hands.” Such signs are posted to make customers comfortable, not to remind employees. So it is for codes of ethics. A written code of ethics probably can’t cause harm but it is mainly for window dressing. Enron had a 64-page code of ethics distributed to all employees.

Question from professor:  What about sustainability and green initiatives?

I never met one businessman who was against the environment, social responsibility, sustainability or other similar catch phrases. Recognize however that such argot is virtue signalling and a dog whistle for political correctness. Greenwashing and green preening is ubiquitous and serves the same purpose as the restaurant washroom signs.

Question from professor:  Is there a role for socially responsible investing?

The people that P.T. Barnum said are born every minute believe in socially responsible investment. I fail to see the social value in throwing money away. Profits are the best metric of a corporation’s value to society. If it makes you feel virtuous, go ahead; you are helping people but just not in the way you believe; you are helping me and other value investors. What is socially responsible anyway? Is blacklisting defense stocks responsible; or, is it more virtuous to have a strong defense to maintain the peace?

Question from professor:  In closing, what is your advice to students?

Single-mindedly focus on truth; do not unquestioningly accept conventional wisdom or political correctness. Businesses must operate in the real world; perforce, focus laser-like on your customers’ needs and wants and the rest will take care of itself.

Next up: Americans are not as divided as their political parties.

Startling Climate Change Perspective

George Noga
Ominous pronouncements from science, government and media about climate change 
Startling Climate Change Perspective
By: George Noga – April 1, 2018

       The following excerpts from respected sources in science, government and media just might change your outlook about climate change and global warming.

        Newsweek: “There are ominous signs earth’s weather patterns have begun to change dramatically; these changes may portend a drastic decline in food production. The evidence has begun to accumulate so massively that meteorologists are hard pressed to keep up. . . If the climate change is as profound as the pessimists fear, the resulting famine could be catastrophic. . . . The longer we delay, the more difficult it will be to cope with climate change once the results become grim reality.”

       New York Times: “Some experts believe mankind is on the threshold of a new pattern of adverse global climate change for which it is ill prepared. . . this climate change poses a threat to the people of the world.”  Time Magazine: “The scientists at the National Oceanic and Atmospheric Administration are confidently predicting the current weather will continue.” New York Times: “The US and Russia are exploring why Arctic climate and sea ice is changing so rapidly and so ominously.“

       Science Digest: “World’s climatologists are agreed we must prepare for the next climate epoch.” Professor Hubert Lamb: “We are on a definite course for the next two centuries. There may be a few fluctuations but these are more than offset by the general trend.” New York Times: “An international team of specialists has concluded there is no end in sight to the trend of the past 30 years.” CIA: “Climate leaders agree climate change has caused major economic problems throughout the world.“

       Professor James Hays: “A trend has already begun. . . and it should continue for the next 20,000 years.” National Center for Atmospheric Research: “There are strong signs that recent climate disasters were not random deviations from the usual weather, but instead signal the emergence of a new normal for world climate.”  Reuters: “The threat of climate change must now stand alongside nuclear war as a likely source of wholesale death and misery for all of mankind.” Harper’s Magazine: “Rising ocean waters may flood most of our port cities within the foreseeable future.“

       I could fill many more pages with the same stuff. How certain and how dire their warnings – comparing climate change to nuclear war, predicting massive starvation and severe climate for the next 20,000 years. Their predictions for 20,000 years did not survive even 20 years; all the quotes in this post are about global cooling and the coming ice age! Today, science, government and media are equally certain and apocalyptic about the opposite of what they were certain about a few decades ago.

     There constantly are new revelations about contrary science, shoddy research, concocted data, fraudulent peer review, plugged computer models, compliant scientific journals, refusals to debate, quashing of dissent and warming throughout the solar system. These often involve the same people who were so wrong about global cooling.

       But wait; it gets worse. The UN IPCC predicted that by 2010 there would be 50 million climate refugees and even published a map showing where they would be as a result of rising sea levels. That was 8 years ago; today there are exactly zero climate refugees, no rise in sea level, no food shortages and even the ozone hole has filled in.

       I apologize if you were momentarily fooled, but it is April 1st. We will have more to say about climate and the environment as we approach Earth Day. Stay tuned.

Our next post is about business ethics and social responsibility.

The Debt Crisis Revisited

George Noga
Many readers responded to my assertions that the US has crossed the point of no return on the debt crisis and that it is Gotterdammerung for America.
The Debt Crisis Revisited
By: George Noga – March 25, 2018

      Wow! My recent posts about the debt crisis Point of No Return (February 18) and Gotterdammerung for America (February 25) (available at www.mllg.us) elicited many questions and comments from readers. Following are my responses.

Question: Your current position differs from what you wrote in the past; explain.

Some readers have long memories. I wrote in 2010 and 2011 that the debt crisis would arrive in the early 2020s and possibly sooner. Now, I project it will arrive in the mid 2020s, maybe sooner. The difference is entirely explainable by (1) the budget sequester passed in 2013; (2) nine years without a recession; and (3) the lowest interest rates in history. There is another key difference: in earlier years I believed the crisis was still avoidable; now I believe we have crossed the point of no return. Fundamentally, nothing has changed except the timeline – thanks mainly to the sequester.

Question: What about Japan; isn’t its Debt/GDP ratio above 200%?

Japan’s ratio is 235%; however, it has pension and other assets, which partially offset the debt part of the equation and lower the ratio to around 100%. The NIKKEI 225 stock index nearly hit 40,000 in 1989; currently, it is around 21,200 – a drop of 47% that has persisted for 28 years and counting. Economic growth has barely averaged 1%; they have chronic deflation and now more deaths than births each year. They have avoided default mainly because Japanese citizens are willing to buy government bonds to finance the deficit. However, Japan has paid a steep price for its debt crisis.

Question: Hasn’t Greece avoided default despite a ratio way above 90%?

Greece’s ratio is around 175%. It has staved off default because it is small (GDP size of Massachusetts) and was bailed out by the EU, which imposed severe austerity in exchange for the bailouts. The US is far too big to be bailed out and if we go under, we drag the rest of the world with us. If Greece were on its own, it would have defaulted and would now be a third world country. Moreover, Greece has suffered; its economy has shrunk, pensions have been cut nearly in half and there is societal upheaval.

Question: Isn’t the US okay as long as people keep buying Treasury bonds?

Yes, witness the situation with Japan – which likely is unique to that country. When US debt reaches a level where it can’t be repaid, why would anyone buy more bonds? The very nature of a debt crisis means the debt can’t be repaid without default, devaluation or financial repression that forces bondholders to accept less than full value.

Question: Is a soft landing possible?

Translation: can we suffer a debt crisis with minimum pain and disruption? The debt ultimately must be reduced via: (1) less spending; (2) higher taxes; (3) inflation; (4) repudiation; or (5) a combination. However, the magnitude of the spending cuts or new taxes would be devastating. A crisis could take the form of a sudden cataclysm or a slow motion train wreck. One way or another, the debt must be purged and every possible method results in a crisis that will fundamentally reshape America.

Question: What do you really believe will happen and when?

If something cannot go on forever, it won’t. No nation has recovered from 90% without economic and social upheaval. The US will surpass 90% within a few years and the ratio will continue to skyrocket after that. The point of no return is 90%; that does not mean the crisis begins the day we reach 90%; it only means disaster can’t be avoided. The ratio may hit 125% or even 150% before the bottom falls out. Government will attempt fixes but they will be too little, too late. A painful readjustment process will purge the excess debt from the system. When it is all over, America will be a different country. Some readers have expressed a more sanguine outlook; I hope they are right.

Our next post on April 1st focuses on a serious environmental problem.

Seventy-Five Years and Counting

George Noga
None of the promises government has made to you will be honored, including, healthcare, Social Security, defense and a stable currency.
Seventy-Five Years and Counting
By: George Noga – March 18, 2018

        Today, on my 75th birthday, I take the liberty to share what I have learned in three-quarters of a century about human nature and the relationship of man and the state. This comes hard on the heels of jeremiads wherein I asserted capitalism is self-destructing and that America has crossed the point of no return in the debt crisis.

     Government is evil. Some government is needed to avoid an even greater evil: anarchy. Because government is evil, it stands to reason we want as little of it as possible. Our founders understood the key is to limit its power; but the trend always is for government to gain and for liberty to yield. Government has ballooned from 5% of GDP in the early years of the republic to nearly 40% today – and rising rapidly.

       Government can’t be reformed because its evil is inherent. Waste, fraud, abuse and corruption are endemic; any attempts at control or reform are futile. The evil spawned by government is directly proportional to its funding; hence, the only way to reduce the evil is to reduce the funding; nothing else works. Power corrupts; even neighborhood homeowners’ associations quickly transmogrify into power-hungry wannabe dictators.

Politicians respond to personal incentives. Public choice economics explains why elected officials don’t care what you want – except to get elected. Government (and socialism) fails because there is an unbridgeable chasm between self-interest (human nature) and the public interest. This is unlike business, which does a good job aligning personal and corporate risks, rewards and incentives. Everything politicians say and do is to further their own interests which, most of the time, are contrary to your interests.

       People are incapable of sacrifice absent serious and present danger. We refuse to act even to stave off a clear and inevitable disaster unless it is manifest in our daily lives. A good example is the present debt crisis which, as demonstrated in these posts, will inflict unspeakable horrors on America; however, the crisis likely is still years away and there is not yet any discernible impact on our daily lives.

       We have lost the connection between capitalism and our liberty and prosperity.  America has become so rich and the wealth is spread so broadly, we are disconnected from what created the wealth in the first place. That is why polls show us so enamored with socialism. I recently read John Steinbeck’s book, “In Search of America”, wherein he prophetically observed: “We (Americans) can stand anything God and Nature throw at us save only plenty. If I wanted to destroy a nation, I would give it too much.”

 

        Americans are losing touch with reality. We spend more and more time transfixed by our devices in the virtual world rather than connecting in the real world. We confuse junk science with actual science, fake news with real news and political fantasy with reality. We are suffering mass delusions about, inter alia, anthropogenic climate change, GMOs, organic food and fascism. Our lassitude conflates identity politics with existential threats – we glom on to the ephemeral while ignoring the consequential. Our politics appeals to people’s prejudices, passions, jealousies and apprehensions.

     In the end, I always harken back to the eternal lesson of Kipling’s Gods of the Copybook Headings; i.e. we ignore the hard-learned wisdom (copybook headings) of the ages at our great peril. Human nature is unchanged since we were living in trees; and just as water surely will wet us and fire will burn, the gods of the copybook headings, with terror and slaughter, will return!

       Above all, I learned what America needs is more liberty and less government!

Our next post takes on business ethics and political correctness.

Destroying the Link between Capitalism and Wealth

George Noga
If  capitalism and liberty lose the culture war, it will be because Americans have lost the link that brought us our unprecedented cornucopia of  wealth.
Destroying the Link between Capitalism and Wealth
By: George Noga – March 11, 2018

      This is the second and final post seeking to answer the question: Does capitalism sow the seeds of its own destruction? The first part is on our website: www.mllg.us. This question first was posed 100 years ago by economist Joseph Schumpeter. We will conclude by comparing Schumpeter’s predictions with where America stands today.

       We are engaged in a great culture war for the preservation of capitalism along with wealth and liberty, which are symbiotically linked to capitalism. If we have capitalism, we ipso facto have liberty and wealth. Without capitalism we become poorer and less free, while under socialism we are impoverished and tyrannized; think Venezuela.

     How bad is the anti-capitalist mentality? One poll showed 4 out of 10 US adults preferred socialism to capitalism. A YouGov poll asked if respondents had a favorable view of capitalism or socialism. With Democrats, it was tied at 42%; millennials chose socialism 43% to 32%. In a Gallup poll, 47% of respondents reported they would vote for a qualified socialist for president; 69% of those ages 18-29 said they would. Of  millennials, 58% would rather live under socialism than capitalism. In a Politico poll, Democrat voters in every age group, gender and race said they liked socialism.

     Unsurprisingly, few people, especially millennials, understand what capitalism, socialism or communism really is. Large majorities conflate European social welfare states with socialism. They particularly believe Sweden is the model of a successful socialist country. Read our October 15, 2017 post “Socialism and Sweden” on our website; it shows Sweden as a free-market capitalist country. Liberals and millennials it seems are not only brainwashed but ignorant. Perhaps they can spend their next vacation in Venezuela, Cuba or North Korea to see real socialism at work.

Let’s revisit Schumpeter’s prediction, which contained five sequential points.

  1.  Capitalism will create great wealth. This has come true to an extent few dreamed.
  2.  More people will be educated. Again true, in America education is universal.
  3.  Professors and teachers will promote anti-capitalist ideas. BINGO!
  4.  People will vote for social welfare states. Already true  as shown by polling.
  5.  Capitalism’s success brings about its own destruction. This hangs in the balance.
     Schumpeter feared the demise of capitalism, along with wealth and liberty, would usher in a new dark age and we may have to wait centuries for the reemergence of capitalism and liberty. If Schumpeter’s final prediction comes true, we will drag the entire planet into a lengthy and unspeakable Orwellian torpor where men lead lives of quiet desperation, where war is peace, bad is good, immoral is moral and big brother always is watching. Nowhere is it written that liberty will survive.
My March 18th post is mega special; hint: it is my 75th birthday!

Why Intellectuals Hate Capitalism

George Noga
Does capitalism really sow the seeds of its own destruction? 
Why Intellectuals Hate Capitalism
By: George Noga – March 4, 2018

       This is the first of two posts seeking to answer the above question about capitalism and self destruction. This question has a nexus to our three February posts (available at www.mllg.us) about the debt crisis. Both stem from the consequences of the stunning success of capitalism in creating enormous wealth for all. This first post explains why intellectuals and progressives loathe capitalism and love socialism.

       A century ago economist Joseph Schumpeter wrote that capitalism would self destruct: “I do not think capitalism can survive. Its demise will not be due to economic failure; instead, its very success undermines the institutions which protect it and creates conditions in which it can’t survive.” He theorized: (1) capitalism would enable more people to become educated; (2) they would be taught anti-capitalist dogma by professors now free to promote their ideas rather than to work; (3) people thusly (mis)educated would vote for liberal welfare states leading to the end of capitalism.

       Vituperation from socialist professors has infected college students and wafted into the general population. There are six main reasons liberals hate capitalism.

1. Capitalism evolved organically. No intellectual wrote a capitalist manifesto; Adam Smith merely explained what happened naturally. Capitalism just happens; it doesn’t require professors to theorize. No one is capable of controlling capitalism, whereas socialism requires controllers, i.e. intellectuals who know what is best for everyone.

2. Capitalism is egalitarian. An uneducated, uncouth bloke can make a fortune by say recognizing the market for used auto parts and buying and stripping junk cars. He gets rich because he provided a valuable service to consumers. In contrast, the intellectual is unrecognized and unrewarded. Successful capitalists repulse elites.

3. Professors are rewarded by bureaucrats, not markets. They succeed by pleasing their statist employers, not by pleasing students (customers) or by attracting new students. Capitalism does not reward them based on their exalted education and good intentions. They prefer regulation to the chaos of the marketplace. They believe their pet theories should override the free decisions of individuals, if necessary by using the police power of the state. Their peers all are anti-market and they must go along to succeed.

“Capitalism is: To each according to his accomplishments.” 

4. Consumers are sovereign; intellectuals have no special status. The common man holds all the power; his decisions to buy (or not to buy) determine what is produced and makes suppliers rich (or poor). Wealth is achieved only by serving consumers.

5. Capitalism brooks no excuses for shortcomings. Capitalist success is based strictly on one’s ability to provide value to his fellow man. Capitalism is to each according to his accomplishments; those who fail are found wanting by their fellow men.

6. Intellectuals desire control over others. They fail to understand why the unwashed, poor ignorant rubes in flyover land believe they know what is best for them and for their families. Intellectuals see themselves as heroic emancipators, crushing greedy capitalists, saving helpless victims and reaping the just approbation of all mankind.

      America’s immense, broadly shared wealth comes with pernicious consequences.  Any society rich enough to have millions of pet insurance policies with acupuncture, chiropractic and mental health benefits is a society that arguably has lost its critical connection between wealth and capitalism. More on this next week along with our conclusion about Schumpeter’s prediction of capitalism’s self destruction.

Our March 11th post is the second and final part dealing with Schumpeter.