FIVE PILLARS OF AMERICA’S GREATNESS

The Corruption of Politics

January 11, 2012: There is an economic and political analysis circulating written by Porter Stansberry, an investment manager in Maryland, who has some pretty startling opinions about corruption in Politics. He says: “One of the biggest factors in the decline of the American civilization is the link between welfare, education, crime and politics.”

It has been almost 50 years since the start of the War on Poverty, President Johnson’s program to radically increase domestic spending. But in fact if you compare speeches about these programs from the mid-1960s until today, you will find the verbiage never changes. These programs and their various spinoffs have been at the center of Democratic politics ever since that time. President Obama is merely echoing the same call for social justice that Robert Kennedy used in his ill-fated 1968 campaign for president.

It is routinely alleged in national debates that something is fundamentally unfair and un-American about the huge “wealth gap” between the poorest Americans and the wealthiest. Some politicians like to argue that the poor never have a real shot at the American dream, and as a nation, we owe them more and more of our resources to correct this injustice. But most important, it is alleged that only the government has the resources to correct this inequality. This is a dangerous notion…

First it promotes the idea of entitlement. The American idea of entitlement argues that because you were born into a rich society, other people owe you something. This idea has become pervasive in our culture. It underlies the basic assumptions behind the idea of a “wealth gap”. Implicit is the assumption that successful Americans haven’t rightfully earned their wealth; that in one way or another they have taken advantage of the society and have an obligation to give back most of what they have “taken”. The more obvious problem is the idea that the government is responsible for fixing the “wealth gap”. But the government has proved wholly ineffective at dealing with poverty in America. It is far more likely to be true that government efforts are the cause of the wealth gap rather than the solution.

But besides the soaring rhetoric, besides the promise of a “chicken in every pot”, what have these programs actually achieved? We have seen the wholesale destruction of urban communities across America, urban communities that have overwhelmingly become populated by the poor, mostly African American. If the intention had been to destroy urban black communities, you could have hardly done more damage than the last 50 years of Democratic policies.

Most Americans don’t realize how dangerous these communities have become. That is primarily because talking about this problem is seen as racist. That is nonsense as the victims of these policies are primarily black people. Discussing the possible solutions to this problem isn’t racist, it’s humanitarian. Sooner or later the people of these communities are going to point the finger at the real culprit, the politicians who have lied and pandered to them for decades, all the while stealing from them at every turn.

Here are some eye opening statistics: Texas taxpayers spent $175 million in 2009 to imprison residents from a small part of Houston, only 10 zip codes out of 75. Thus people from neighborhoods that are home to only about 10% of the city’s population account for more than 33% of the state’s entire $500 million annual spending on the State’s prisons. In Philadelphia the numbers are similar. Over one half of the State’s $500 million budget for prisons is spent on 25% of that city’s population. In New York Taxpayers will spend $539 Million, over half of the state’s prison budget, to imprison residents from 16% of New York City’s population living in only 24 of 200 different neighborhoods. In all these neighborhoods, the population is overwhelmingly poor and black. Life in these places reflects a complete collapse of Western civilization. The common denominator in all these communities is a breakdown in the family and the resulting collapse of the school system. What you have left is crime- violent and political.

Socialism and the Destruction of Detroit

The King of collapsing and imploding cities in America is Detroit. In that city, only 27% of the black male students in the school system graduate from high school. This is not a racial problem. Only 19% of the white male students graduate from those same schools. In 1961, Jerome Cavanaugh, a Democrat, was elected Mayor. He ushered in a new kind of politics. He was white but got elected by promising to give Detroit’s African American population the civil rights they deserved. But he didn’t stop there. Seeing the political advantage to serve this community’s interests, he did all he could to bring government benefits and government spending to Detroit’s black community. Cavanaugh brought socialism to Detroit. Having served on President Johnson’s “Model Cities” task force, he created a program to turn a nine square mile section of the city with 134,000 residents into a “Model City”. To help finance the effort, Cavanagh pushed a new tax through the State Legislature and a “commuter tax” on city workers. He promised the mostly poor and black residents of the Model City area that the rich would pay for all these benefits. He bought their votes with taxes they didn’t have to pay. Federal agencies and the Mayor were soon telling people where to live, what to build and what business to open or close. In return the people received cash, training, education and health care.

But the people didn’t like being told what to do or how to live. Not surprisingly, the Model City program was a disaster for Detroit. Within five years it had helped trigger a complete breakdown of civil order and the city’s population began to rapidly decline. In July of 1967 when police tried to arrest 80 people in a night club including two Vietnam veterans whose return the folks were celebrating, the neighborhood began to riot. The scene turned into the worst race riot of the 1960s and over 40 people were killed, commercial buildings and homes were set on fire while looters operated freely. Over 5000 people mostly black became homeless. The rioting lasted for five days while the Mayor did nothing to stop it. Finally President Johnson sent in two Divisions of paratroopers to put down the insurrection.

The situation destabilized the entire city. Most of the people who could afford to leave did. Over the next 18 months, 140,000 upper and middle class residents, almost all white, left the city. The Model City area lost 63% of its population and 45% of its housing units. So what did government do? They expanded the Model Cities program in 1974 and arm wrestled General Motors to contribute $488 million in exchange for certain tax concession to fund it. Even with all their power and all the money centralized planners couldn’t succeed with any of their plans. Nearly al the upper and middle class citizens left Detroit. The poor fled too. As said, the Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

Today, the crisis continues. Recently 9000 seized housing units were offered in an auction beginning at $500 but had no bids. None of this is surprising. It’s exactly what you’d expect to see given the implementation of a socialist scheme like a Model Cities program. Quite simply, coercion doesn’t work for economic development and you can’t tax yourself into economic prosperity, President Obama’s policies notwithstanding. It might buy votes but sooner or later the voters will realize all that has been promised is a lie.

With such a disasterous experience for a commuunity, one would think that their Representative in Congress would have been voted out of office, but no as a matter of fact John Conyers Jr, the Congressman who represents that area of Detroit has been re-elected everytime he ran since 1965 and with huge majorities. He is the second longest serving congressman in the House. In similarly blighted areas in places like Philadelphia, Baltimore, Los Angeles, New York, Houston and of course Washington DC, you find the same thing, a Congressman who rarely faces opposition in his reelection campaign. The formula is a political system that features transfer payments, government jobs and lucrative government contracts to voters in exchange for political support- and in many cases outright bribes. they do all of these things under the cover of “Progressive ” politics and “Social Justice”

On Man’s Opinion— Bud Brewer

Obama’s Solution For Saving the Middle Class-Egalitarianism

December 6, 2011: In a major policy speech in the Kansas town of Osawatomie, President O’bama gave a semi ambiguous talk that laid down a direction for tax policy that would enable Americans to build a nation where everyone receives their fair share. If you worked hard, you’d take enough home to raise your family, send your kids to school, have your health care covered, enjoy a comfortable standard of living and receive the benefits of a government guaranteed retirement. His opinion seems to be that personal responsibility only applies to work for the common good, that competitive attitudes and a free market no longer work for the those seeking to build a better life. The words below are somewhat abridged but summarize the Presidents view:

“For most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contribute to the success of our economy actually benefit from that success. Those at the very top grow wealthier from their incomes and investments than ever before. But everyone else struggles with costs that are growing and paychecks that aren’t – and too many families find themselves racking up more and more debt just to keep up.

Our success has never just been about survival of the fittest. It’s been about building a nation where we’re all better off; where we pull together for the general good. We all need to pitch in and do our part, believing that hard work will pay off; that one for all and all for one will be rewarded; and that our children will inherit a nation where those values live on.—Barack Obama

Welcome to the Soviet Republic of America.

One Man’s Opinion–Bud Brewer

Disparity in Income – Fair or Unfair?

October 31, 2011: The popular theme you hear today from some individuals, politicians and the liberal media is that the top 20% of income earners have seen their income grow by more than 250% during the last 25 years while middle class incomes have grown less than 40%. On its surface this fact suggests a terrible inequity in how the free market capitalistic system works. Many folks are beginning to question the propriety of those people who are apparently more competent, higher educated, more creative or have more useful skills, etc., to be rewarded based on a pricing system keyed to demand for their services. We hear this argument more and more by liberals among the politicians or those individuals who feel left behind or those that just have not made the effort or are unable to make the effort to compete in a world where values are based on a free market system. So what do we make of this? Should we ask our Representatives to pass some legislation that will create a special tax on anyone whose income has increased at a rate that is more than the rate of increase in the median income of the lowest 80% of taxpayers? How much should this surtax be, 20%, 30%, or more of the excess? How will it help the lower 80% of taxpayers? Other than give the middle income or lower income taxpayer some satisfaction that the spread between high earners and middle or low income taxpayers has been artificially narrowed and the Government has more revenue temporarily to spend on public projects, etc., it seems to me such a solution to the perceived problem would have enormously adverse consequences over the long term. This disparity may continue to widen as the relative achievement of our population comes from the product of fewer and fewer of our citizens working or serving in a global market. At the same time more and more of America’s workers who have enjoyed relatively high incomes have been laid off as companies expanding into multinational markets have found that the same productivity is available in the developing countries by workers in those countries at a much lower price.

What is really behind this discrepancy? It looks like corporate managements are pursuing efficiency by forcing their domestic workforce to compete with increasingly competent workforces available in developing countries all over the world. With the globalization of markets and increasing multinational operations by America’s largest corporations, the domestic worker is having difficulty demonstrating that his value is really worth the difference between what would otherwise be paid to a foreign worker in a foreign country. The American Unions have done a great job for the last 60 years negotiating with managements to get them to agree to offer higher hourly wages plus increased benefits, like health care, paid vacations, retirement benefits, etc. to their workers. Managements had to raise their product prices to offset the increase in these wage costs or they introduced automation of some worker functions that led to some increase in worker productivity, modest lay-offs or just reduced needs during any expansion. As the global markets began to offer greater opportunity for business in emerging countries, it soon came about that management had to make decisions whether or not it made more sense to remove or relocate all or some part of their labor intensive production to geographical locations where the cost of that labor would be significantly less. This progression will not change until there is parity in compensation among the workers for comparable skills in every part of the global economy. Neither the Executive branch nor the Congress can do much to change this process without interdicting the natural market forces of demand and supply of the American worker. Their answer is to subsidize wage earners, set tariffs on imports, or hire more low skilled workers in the public service sector while offering them retraining at tax payer’s expense.

Low skilled labor has been over paid in the U.S.A for years primarily due to the power of the labor unions to interrupt the production lines of a company and thus cause the threat of considerable expenses never to be recovered. As a result, management would give in to the demands of the Union and just use their pricing power to adjust to the higher cost of production. In the domestic market, this struggle worked pretty well for companies as they were able to maintain their profit margins. Yet by adjusting prices to maintain profit margins the products of these companies will or have become uncompetitive in foreign markets where demand is growing faster. As long as the primary consumer and worker or producers of products were the mainstay of the domestic market, the economy grew and everyone gained. But with the start of globalization of markets 25 years ago, all this changed. The ability to make a product offshore and import it back to our domestic markets at a more competitive price had a positive impact on domestic revenues for a while however slowly but surely the big multinational companies began to see a growing market for their products in foreign countries and by manufacturing them in those markets using much lower wage rates indigenous to a specific country they were able to tap into a new and growing consumer demand at a price that was affordable because of the low cost of labor in that market.

Over these last 25 years, the downgrading of the U.S. worker has limited growth in their wages and benefits. The value of their output has been rationalized to a Global standard determined by increasingly equally skilled workers in developing countries. Some companies have even been unable to sustain domestic production thus causing an increasing number of unemployed people with limited skill and few jobs. 2008 and the housing collapse exacerbated this to a point where we now are unable to generate good high paying jobs for relatively low skilled workers.

Ok, now we understand why the middle to lower income workers have had little to no growth in their income over the past 25 years but why have the wealthy done so much better. The basic answer is those individuals who are better educated, more creative, have an entrepreneur spirit, have a special talent or just work harder, save more and invest successfully are just more likely to experience growth in their earning capacity. There are some business men and women who can manage a department, a division or a company so as to generate larger and larger revenues and profits leveraging capital with efficient productive capacity, even sometimes located in foreign markets. The Actor who performs in movies or on stage with such imaginative skill as to be able to attract large audiences will gain relative wealth in accord with their skill. So will the super athlete in professional sports, or an author of popular books, or a creative high tech engineer like Steve Jobs. The value of their output is determined by the same market place as the individual worker whose income has grown little for 25 years. It is this market that allows the potential for any individual to receive fair value for his productive capacity. Some receive great value and are few in number. Others who are producing relatively unspecialized work for which there is global competition will receive considerably less income for their production and when you compare the difference of that income with that of the most talented, most creative and most successful, you will find that Disparity even grow higher.

Thank god that we have individuals who create relative value and can benefit from offering that value in a free competitive market. It is that market that allows the output of those unique individuals to be enjoyed by all of us and create real wealth for themselves, for their beneficiaries and even for the rest of us by being able to use, enjoy or benefit from what they do.

One Man’s opinion—Bud Brewer

DOWN WITH MERITOCRACY

October 24, 2011: Recently Newsweek reported that the “Wall Street Occupiers” were just regular folks like you and me who simply have had enough of our unfair economic system, and they went on to say “What’s wrong with that? But surveys taken of the New York “Occupy Wall Street” gang reflected that just 15% of them are jobless, and although most voted for Barack Obama in 2008, only 44% approve of the job the President is doing. 52% percent have participated in political demonstrations before, and 31 % say they would support violence to advance their agenda.

But what is their agenda? Newsweek says: “the protestors have a distinct ideology and are bound by a deep commitment to radical left wing policies. They are comprised by an unrepresentative segment of the electorate that believes in the radical redistribution of wealth”. Throughout history there have been segments of every society that did not want to have to compete in the marketplace. Instead of admiration of achievement or inspiration to do better they believe that there should be a governor regulating the accumulation of wealth or tax policy that transfers wealth from the successful to those who for one reason or the other have less. The claim is that “It is only fair”.

But America was founded on the principal of free choice and that anyone could succeed if they worked hard and did well in their job and were patient regarding recognition by others. As a popular pundit said in his column recently,” America is a Meritocracy” where those who practice hard work, self-improvement and diligence will be rewarded and those that do not will fail. The egalitarian believes this to be unfair and this attitude is what drives their hatred of capitalism that we are seeing in some sectors of America. During the past century, the American people, strongly influenced by social media including films, television, radio and Broadway authors, became increasingly conditioned (educated?) to the fairness and propriety of helping the disadvantaged. And that was good, but somewhere along the way, primarily because of individuals or groups seeking political advantage, it became more and more common among the population to believe that achievement was bad. If you were successful in a business or in a commercial way you must be greedy. The only way you could have accumulated a lot of money was by disadvantageous acts against the poor or those with less skill. Some people began to voice opinions that survival of the fittest is unfair simply because there are some who are unfit. If you survive therefore you must do it over the bodies of the unfit. Their knowledge of how the Meritocracy generates the resources to accommodate or fund the needs of the poor or disadvantaged has become lost in the uproar over how much tax the wealthy pay.

The Occupy Wall Street crowd believes the accumulation of wealth by individuals is immoral if there is poverty among society. They want to have a government bureaucracy determine what people are allowed to do and when and where they can do it. This is not just because of the need to provide for the public safety but more so because they believe it is a government’s responsibility to even out their perceptions of excesses in wealth accumulating to one person, family or group of persons such as a corporation.

It would be useful for these unwashed anti-capitalists camping on the streets in front of legitimate businesses to do some research or pick up a book or read a good unbiased newspaper so as to see what happens to “Command Economies”. If they discovered anything it would be that one of the 20th century’s largest socialistic societies, Russia, governed under a communist manifesto imploded under the weight of their inefficient bureaucracies. They would learn of China’s transition from Communism to a quasi-socialistic market based economy. They would learn about the real poverty resulting from the central controlled economies upon citizens in Cuba, Zambia or North Korea. Any objective analysis would demonstrate to them the negative consequences when a government controls the allocation of capital rather than the free market, when a government operates on the principal that all property is public and individual achievement is declared to be indicative of greed. They would also learn that if we allow this radical movement to lead us into making the mistake of destroying or even just impairing the potential of our best institutions and most creative individuals, then we are lost.

One Man’s Opinion—Bud Brewer

The Big Lie: Tax policy has made the Wealthy richer and the Poor relatively more Poor!

October 6, 2011: I listened to an interesting debate this morning among guests on a show called “Morning Joe” The Joe is Joe Scarborough, former member of the House of Representatives, and middle of the spectrum Republican. His co-host is Mika Brzezinski, whose father, Zibignieu Brzeinski, is a global political analyst and was once a consultant to my old firm, Dean Witter and Co. The guests included, Pat Buchanan, Donny Deutch, Mike Barnacle, Tom Brokaw, and Willie Geist. Pat Buchanan, a political advisor to Presidents Nixon, Ford and Reagan, is a TV personality and columnist in his own right. He sought the Republican presidential nomination in 1992 and 1996. He ran on the Reform Party ticket in the 2000 Presidential Election. Mike Barnacle, is a left leaning columnist and is a quasi-permanent guest on the show along with advertising scion, Donny Deutch, a liberal who joins the show from time to time. Tom Brokaw is a well known TV personality.

This morning after the group commented on what they thought was the meaning or purpose of the so called Wall Street Demonstrations, Joe Scarborough (taking up the Mike Barnacle mantra) complained that for the past 30 years, the Wealthy in our country have become wealthier and the Middle class and Poor have become poorer. He said “this is because of the prevalent tax policy in which the Rich were not taxed enough”. Furthermore he said, “It is not only unfair it is wrong”.

I have a Question. Just how does increasing tax rates on the wealthy (those defined now as earning over $1,000,000 income or capital gains) make the poor financially better off? Will those revenues be transferred to the Middle class families and the Poor by a negative tax of some kind, a dole, direct payment? Of course not. Well then if not, is he saying that the government will take those revenues and create numerous enterprises with high paying jobs and gift an equity ownership of them to the Middle class and Poor workers so they can enjoy dividends or capital gain from them? Sure you bet, every homeless person will be given shares of “Obama Enterprises”, Not! I have heard the following voiced by President Obama and his supporter’s ad-nausea. “The wealthy are not paying their share!” When he says the Wealthy are not paying their share, I must ask: their share of what? Does he mean bigger government, more services and entitlements? This sounds like it could develop into “a chicken or an egg” argument. The higher the tax rate, the more the government spends on the government. If supposedly the government is going to invest these tax revenues in businesses, does the average citizen really want our government to replace the role of the free capital markets by assuming a greater responsibility to allocate capital to the private business sector”? Would this take the form of a direct transfer of equity or in some beneficial form of ownership for the middle class and poor citizens of this country? I’d like to hear from someone what country has done that and generated rising standards of living for it’s less fortunate citizens. The fact is that there are more examples like China, Russia, India, Brazil and Vietnam among others, all having had growth restrained by a command society government for years, currently have adopted capitalistic methods of incentivizing private investment capital to create growth.

No, I can’t believe any thoughtful person would really want to go that way. While it is essential for the government to partner in many ways with our country’s Bill Gates and people like Steve Jobs and all the other aspiring and enterprising individuals whose creativity and willingness to “bet it all” benefits all of mankind, the Government should limit its involvement to making the business environment reasonably safe from fraud, free of excessive regulations or the violation of human rights and then get out of the way.

Both Obama and Bush increased government spending and continued to execute one or more wars without adopting a means (War tax) to pay for them or without setting lower priorities for discretionary spending for administrative expenses of the government, its agencies and their operations. As a result, our national debt is growing at a rate that will crush our economy within the next decade. Tom Brokaw said the right thing when he replied to Scarborough’s comment, “any so called “Millionaire’s tax should be accompanied by a restructuring of the tax code”. I believe we should eliminate most deductions and replace the progressive tax with a consumption tax. The latter has the benefit of providing individuals the control, to a certain degree, over how much tax they will pay, how much they will spend on their life style and how much investment of their savings they will make. Those that live the good life, traveling all over the world, drive Lamborghinis or live in mansions will bear the burden of paying largest part of taxes collected by the government. Those that save more and invest more will enjoy the fruits of providing capital for businesses to grow and hire more people. There is no question, however, the transition to this stage could be uncomfortable, but with certainty about the future tax law, our small businesses, individuals and corporations will begin to expand or invest in new markets and, in my opinion, this will provide real jobs that create real value over the long term.

One Man’s Opinion–Bud Brewer

“Risk Aversion” Is it an inevitable or an adjustable worry?

October 3, 2011: Recently Robert J. Samuelson of the Washington Post wrote an article entitled “Risk Aversion”. In reading the piece, I was reminded of my fear during the summer of 2008 that, if elected, the Obama Presidency would create a wider than usual division of attitudes held among conservative and liberal voters making up the electorate in this country. Like most conservatives at that time, I felt his political views were so far to the left that should he be elected, the country would experience a shift toward more socially driven government policies. I felt that more government directed economic programs would cause severe dislocation in the market based system that had generated such enormous economic growth over the last half of the 20th century. But experience also told me that when he or any candidate gets elected in this country, in order to govern, they must move to the center and give up their radical ideas. Playing to your base is not unusual when campaigning but when the elected officer takes over, be he Democrat or Republican, they normally move in a subtle way back toward the center so they can govern. In the case of Obama, however, with the super majority he achieved in the 2008 election, upon taking office he continued his liberal rhetoric and began to do what he said he was going to do. The business community nevertheless felt that the economy would begin to recover and Obama as a symbol of American diversity was going to be a good thing. They did what they normally do in the face of a business correction, they reduced employment, cut costs, adopted more efficient systems and shut down marginal or high risk expansion programs (Coincidently, productivity and profit margins expanded sharply producing high cash flows on relatively modest growth in revenues). They planned to patiently wait until demand picked up before increasing their investment in new product or intiate expansion in developing markets. In a normal inventory based recession business recovers when demand and supply comes into balance. But this was not an inventory induced recession. It was a “Financial Tsunami” caused by excessive risks taken by financial institutions (supported by Government policies) funding and trading in overvalued mortgage and derivative instruments creating assumed but false capital values in the global banking industry. Corporate reluctance to invest continued into the first few months of the Obama Presidency as two pieces of radical legislation began to work their way through Congress. President Obama had promoted their consideration and was strongly endorsing their passage as good for the “People of America”. Most Small business executives just assumed that neither bill would be passed if it was going to be an unacceptable financial burden for them. But the very reluctance large multinational companies had exercised to invest their growing cash capital reserves combined with the increasing restrictive lending policies at small and intermediate sized banks were making it difficult for middle sized and small businesses to fund their operations. The result was increasing levels of unemployment and its affect upon consumer demand. As the housing market continued to implode, consumer confidence deteriorated further and notwithstanding a huge shift in the electorate’s attitude culminated by the 2010 midterm-elections, the economy continues weak. Business managers see little reason to risk capital given the uncertainty of the impact from the huge increases in our projected national debt caused by seemingly unbridled government spending, “Obamacare”, the Dodd-Frank financial regulatory legislation, and President Obama’s call for increasing tax rates upon those earning over $200,000. He calls it “paying their fair share”.

Seeing this continued economic weakness and reluctance by multinational corporations to invest their growing cash balances, one would expect the President to use his “bully pulpit” to adopt a policy of building confidence in both the consumer and producer so economic activity would be stimulated. Obama and his supporters see it differently. They see it as a demand problem to be solved by fiscal and monetary stimulus programs at the U. S. Treasury and the Federal Reserve combined with an increase in the tax rates payable by the wealthy. The President calls his new spending plan a “Jobs Program”. He is out fireing up his Base in campaign mode calling for immediate passage for a Bill to spend $450 Billion more to stimulate the economy. One of the benefits provided for is the special credit to be paid to businesses that will hire a currently unemployed person. I guess the author of this plan just has no comprehension of what motivates a business manager to hire people. It is not to receive a check from the Government! It is because they have a need for the value and skills provided by that individual in the context of making a profit from the productivity of that individual over an indefinite future. Business managers understand the value of investing in human capital, government legislators apparently do not. Thus we have deteriorating confidence in our future and the “Risk Aversion” referred to by Samuelson in his recent article in the Washington Post.

A real leader, understanding the potential of the American Spirit, voicing his confidence in individual actions and personal responsibility will cause the American economy to right itself. He will verbally nurture commitment and the willingness to assume investment risk by proposing tax policy that incentivizes such at the margin for the long term. He will slash bureaucratic excesses and eliminate unnecessary government agencies. He will lead by example supporting private institutions operating for the benefit of their community. He will concentrate upon providing a military capability that assures, within reasonable fiscal limitations, the personal freedom and safety of American citizens both domestically and internationally. He will avoid class warfare in his actions and rhetoric. He will eschew Political Correctness by embracing national programs that are in the best interests of all Americans over the long term. He will nuture the aspirations of all Americans and defend the Constitution and the rights provided by that document.

Can there be a real leader out there?—Only time and effort will tell.

One Man’s Opinion,

Bud Brewer

A game for all ages

Here is an article that appeared in the ACBL Bulletin, September Edition. Click on this link to read:

Bulletin Digital Article

UNREALISTIC EXPECTATIONS

August 30. 2011: The link below is to a video of a Frontline program billed as the “Madoff Affair”. While the crime of this man has been well covered since discovery about 4 years ago, and there have been several media stories describing his elaborate Ponzi scheme, I was struck by the comments of those individuals who gave this man, directly or indirectly, billions and billions of dollars to manage for them. But I was more surprised, nay shocked, that the fudiciary executives and trustees of institutions like Kentucky University, the Women’s Zionist Organization of America, Steven Spielberg’s Wunderkinder Foundation, the Lappin Foundation, the Stony Brook University Foundation, the Elie Wiesel Foundation and the James Harris Simons family foundation had done the same. The reason for my reaction was the words these people were using in interviews as they described their shock, surprise and disappointment when they were told that most if not all of their investment with Bernie was gone. Not one of them took personal responsibility for what had happened to them. They kept saying: “How could he have done this to me” or “What made him do it”, “he took our very last dime “. The individuals would go on to say “We have to sell our ocean front home in Palm Beach” or our membership in the Club, or our New York Apartment and it is all the fault of this horrible man!” Fault? Well I guess so, but I wonder, did these people ever take a business course or a class in economics when they were going to school? Did they really believe that an investment manager could produce returns of almost 2% per month even when the stock market was falling 20-30%? Wouldn’t you think that they might get a little suspicious that something didn’t look quite right when the returns showing on the monthly statements were always within a 1-2% spread from 19% per annum? The Dow Jones Industrial Averages and the Standard and Poor Stock Index were moving up and down as much as 25% in one or more years during this span of years but on average they rose smoothly from 1986 until 2000 when the Hi Tech bubble burst and the country fell into a recession with the GDP declining and the market in a swoon. Nevertheless Bernie Madoff Client statements showed that they were earning 19% per annum.

I guess if directly or indirectly you had turned over all or most of your wealth to a man who was a member of your church or your social club, was well respected by those who knew him , and who sent reports to you saying that you were earning almost 20% per annum on your money he was managing, unless you had a good understanding of how business works and how the financial markets work, you just might believe that he was a superstar and had a method that generated consistent results that were not only better than anyone else, but they never varied more than 1% or 2% per year. Why should you question them? Well you were not alone. Trustees and Fiduciary Executives responsible for billions of dollars in Foundations, or College Endowment funds were doing the same thing as you were, looking the other way believing that Madoff, the mystery man, was just a better money manager than anyone else. Well he didn’t and couldn’t produce the kind of returns that he was reporting to you and if you or those derelict executives and trustees had remembered anything they learned in courses in economics or business you and they would have realized that what allegedly was happening was impossible and therefore was not true.

Consciously or not, those that placed money with Bernie Madoff knew that they were participating in something that was not right, but the money was so good. The Manifestation of greed can make one deny reality even though they know intellectually that a proposition is not true. But when the truth was known these people denied responsibility for their decision to participate in the process and that is inexcusable.

Everyone should study and understand the simple physical and financial fundamentals of demand and supply relationships leading to transactions. They should learn the effects on business volume or operating profit margins caused by product or service obsolescence or change in behavior, technology or science and appreciate the consequences of such change. Realistic expectations for return on investment are based on the likelihood of whether a proposition can be experienced over and over with little if any interruption in the average trend projected. Finally, the simple arithmetic change in value created by compound growth at a rate higher than that necessary to replace the amount of a base that is consumed plus nominal cost of capital produces a parabolic curve that sooner or later must collapse of its own weight.

No, unrealistic returns are just that, unrealistic! And to expect them to continue reflects a flaw in the individual’s propriety, and an action for which responsibility is their own. Bernie Madoff wasn’t responsible for all these people or institutions losing billions! The responsibility was theirs and theirs alone.

When you have an hour to watch and listen to this video, do so. You will learn something that might just prevent you from beginning a business the success of which depends upon unrealistic expectations or prevent you from giving your hard earned savings to someone whose record is based on that same unrealistic rate. If you have children or grandchildren, insist that they take courses in business and market economics. By this blog I am following that advice for my family.

FROM BONDAGE TO BONDAGE

August 20,2011: The dictionary says: “Democracy means rule of the people”. As most students of history know, the two most common forms of democracy are direct democracy and representative democracy. In direct democracy everyone takes part in making a decision, as in a town meeting or a referendum. The specific rules may vary: perhaps everyone must agree, perhaps they must be consensus; perhaps a mere majority is required to make a decision. The other, better known form of democracy is a representative democracy. People elect representatives to make decisions or laws. The United States of America is a representative democracy.

Alexander Tytler (1747-1813) was a Scottish-born English lawyer and historian. Reportedly, Tytler was critical of democracies, pointing to the history of democracies such as Athens and its flaws, cycles, and ultimate failures. Although the authenticity of his following quote is often disputed, the words have eerie relevance today: “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.” His reasoning was that a democracy will continue to exist up until the time voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy. Some believe that a failed democracy is always followed by dictatorship.

The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. The Pilgrims sailed to America in an attempt to escape the religious bondage of a King to achieve the spiritual freedom of a new world. With the onset of the Revolutionary War, the colonists were demonstrating the courage necessary to move from spiritual freedom to liberty. By demanding their independence and being willing to fight for it, a new democracy was born and this new democracy grew rapidly for nearly 200 years.

But during that period, in 1933, the United States of America, having been thrown into the Great Depression, elected Franklin Delano Roosevelt as president. Facing total economic collapse, Roosevelt took the U.S. dollar off the gold standard. At the same time, Germany, also in financial crisis, elected Adolf Hitler as its leader. World War II soon followed. In 1944, with WWII coming to an end, the Bretton Woods Agreement was signed by the world powers and the U.S. dollar, once again backed by gold, became the reserve currency of the world. After the war, America passed England, France, and Germany to become the new world power and our wartime industries turned to rebuilding the war torn countries of Europe and Japan. Having entered the war late, the U.S. emerged as the creditor nation to the world. Our factories weren’t bombed and the world owed us money. The U.S. grew rich financing the rebuilding of England, France, Germany, Italy, and Japan. The American democracy was transitioning from a period dominated by its willingness to sacrifice to sustain its focus on liberty to a period when it was becoming blessed with abundance — maybe too much abundance.

In 1972 Nixon visited China to open the door for trade. What followed was the biggest economic boom in history — a boom fueled by the United States borrowing money through the sale of bonds to its citizens, its institutions, and it’s trading partners, especially China, one of the world’s poorest countries at that time. The sale of these bonds financed a growing U.S. trade deficit. Developing countries like China produced low-cost goods, and we paid for them with money borrowed from the savings of the Chinese workers. American factory production, which had fueled the American boom after WWII, was in effect being “shipped” overseas along with high-paying, if inflated, American jobs. America was shifting from abundance to complacency. Rather than produce, we borrowed and printed money to maintain our standard of living. We kept borrowing to finance social-welfare programs. Over the next three decades or so, America slid from complacency to apathy.

In 2007 the subprime crisis reared its ugly head. By 2010, unemployment increased to double-digits, and the disparity between the haves and have not’s widened. Many high income earners got richer while many once-affluent people walked away from homes they could no longer afford. America was moving from a period of apathy to dependence.

Today we are dependent primarily upon China and other developing countries to finance our debt as well as fill our stores with low cost products. At the same time, millions of Americans are becoming dependent upon the government to take care of them. From inflation adjusted Social Security benefits to Medicare, to payments to the unemployed, to student loans, to Veteran and disability benefits, if Tytler’s projection is correct, the American representative democracy is presently moving from dependency back to bondage.

Although you will hear many people complain about the way the Chinese do business, we all continue to do business in China. We have to. They’re the next world power. Realists cautiously believe that trade, business, and understanding offer better options for world peace and prosperity than isolationism. The Western world must seek to grow stronger financially as China continues to gain power. To do this, our schools need to offer more sophisticated financial education to children of all ages. This is not the time to be complacent or apathetic. This is the time to think globally. Putting up trade barriers would be disastrous. Instead, it’s time our schools train students to be entrepreneurs who export to the world rather than employees looking for jobs that are being exported to low-wage countries. I don’t fear the Chinese. I fear a government that is self-serving and increasingly restrictive of our freedoms. If we fear anything we should be in fear of our own growing weakness. Only a weak people can be oppressed. Today, America has too many people looking to the government for financial salvation.

Americans may one day need to flee the financial oppression of our own government as our constitutional values become less respected by our representatives. From “Bondage to Bondage“, this is a real possibility unless: “We the People of the United States of America, in order to form a more perfect ……..

One Man’s Opinion: Bud Brewer