Let Them Eat Cake

‘Need’ now means wanting someone else’s money. ‘Greed’ is wanting to keep your own money. And ‘Compassion’ is when a politician arranges the transfer." The MoGu elaborates…

"Workers’ Lack of Skills Lowers Wages," says Greenspan. I quote this from a headline in the Washington Post.

What a clueless putz!

First, off, very few nominal wages, of anybody, have been lowered. In fact, wages are "sticky downward," meaning they don’t have a tendency to fall. If you are in Washington DC and you happen to run into this Greenspan idiot, please tell him that he is stimulating a vicious monetary inflation and that it’s making the prices of everything go up, which has the same effect as a wage cut; the amount of money that you make is insufficient to buy the things you need. Skills and education have absolutely nothing to do with it.

I am here to tell you that there are plenty of people in this country who were not born with stratospheric IQ’s, myself included, and that we are not going to benefit from more education. And even if we do somehow manage to acquire this vaunted education, the ugly fact remains that there are lots and lots of mundane, non-thinking jobs that have to be done, and most of them only require the ability to read and follow directions, and many of them require no education at all. And in fact, there are very few jobs in the United States that require any real education other than the ability to read at a fourth-grade level, as employees are merely handed a set of instructions ("company policy" and "job description"), and it is your job to perform them by rote.

The problem facing American workers and their wages is that the damn Federal Reserve has created so much money and credit that it has destroyed the value of the dollar, so that it takes more and more of these devalued dollars to buy food and rent, and wages are not rising as fast as prices. It’s as simple as that. And it has nothing at all to do with education, except for the woeful lack of education and smarts evidenced by the Fed, the press – who let them get away with it because the term "journalist" is now just a euphemism for "parroting idiot," – and the brain-dead education establishment that indoctrinates American children to trust the government and the press.

Low-Wage Workers: Inflation Heading Higher

To save myself from getting hoarse in another of my patented screaming hissy-fits, I will merely point to the handy chart that reveals that the minimum wage was last increased seven short years ago, and prices have risen 17% in that time. (To save you the time and trouble, this works out to be only 2.3% per year, compounded). And inflation was very low during this time, as foreign producers kept flooding us with low-cost consumables.

Those days are over, and inflation is now double that, and heading higher still. So even if the jerks that infest government offices actually do pass legislation mandating a higher minimum wage, the poor and the low-wage worker will be right back in the same fix in only another three years. Or less. And it will worse.

Maybe that explains why the government is trying to get more money into the hands of the low-wage worker and the poor. It needs their votes, yet it needs to keep screwing them with inflation to stop the whole house collapsing. Examples of this are the Earned Income Credit section of the 1040 tax return, where the government actually gives money to the low-income worker. Other examples are, of course, welfare and Medicare and the various housing subsidies, which provide free food, free shelter and free medical care.

For years, the poor have had access to a free phone service. But the latest wrinkle, around these parts, is to expand the eligibility, so that even MORE people can get a cheap phone service! The headline in the St. Pete Times claimed "PSC Votes to Help Poor Pay for Phone Service." PSC, in case you were wondering, is the acronym for Public Service Commission, which is a Florida government commission that regulates various phone companies and utilities. I’m sure that you have something similar where you live.

Low-Wage Workers: The New "Poor"

Who are these new "poor?" Well, according to the rules, if your kid participates in the National School Lunch program, where the kid gets free lunches (and often breakfasts, too), then the whole family is automatically qualified to get cheap phone service! Otherwise, you gotta earn less than 135% of the of federal poverty guidelines.

Now I would be a real hard-hearted person to deny the poor the chance to phone out for pizza or call up their friends to spread vicious gossip about me and say nasty things, which are mostly lies or exaggerations, but the part that really tickles the hell out of me is that the phone companies, and I gotta use an exact quote here so that you can get the full impact of the humor, "vowed to expand the income-based eligibility requirement when concerns were raised about their applications last year for record-high increases in basic phone rates."

So, to paraphrase, the phone companies decided they wanted to increase their rates because they are a greedy bunch of overpaid jerks who excel in mismanagement and they were all about to be fired. Ergo, the application to the PSC for a gigantic increase in phone rates.

But since that would obviously be a hardship on the poor, they "vowed to expand the income-based eligibility requirement" so that they could saddle the customers who are not poor with BOTH higher rates AND an extra charge to insinuate more blatant communism into the phone service industry! Because, and you can quote me on this, every dime of that cost is added to my bill in the form of higher rates, particularly in an add-on called the "Universal Service Fund" which I see on the phone bill every damn month.

Now, after I have been calmed down with massive amounts of intravenous medications, I can thus show 1) how the French Revolution could have been prevented and 2) how the communists won the Cold War. All that was needed was a system whereby every pseudo-wealthy consumer of utilities has extra taxes piled onto the their monthly bills, while the State provides the poor with free goods and services, just like we are doing. Then, Marie Antoinette would never have said "Let them eat cake" when informed that the French peasants were starving for lack of bread. This is because the government would have just added a charge to my bread bill, and then used the money to buy the poor all the bread they could eat!

Low-Wage Workers: The Poor Are Not Poor

Ergo, today’s poor are not poor. They are only considered poor because they do not earn money to buy the things that they consume, because they get it all for free. They receive free food, free housing, free medical care, free monthly stipends, and, of course, free phones! And computers are installed at the free libraries, so that the poor can go on-line, for free, and do whatever it is that the poor do when they are on-line, which baffles the hell out of me, since most of them are functionally illiterate, and the ones that are not completely illiterate don’t like to read, so they don’t. So why in the hell they would want to go on-line is beyond me and my limited intellectual capacity.

The reality is that the poor are actually very rich; they have everything that they need to live comfortably, and they have nothing but free time to enjoy it, and of course, whine about how they want more and more, and how the government ought to wrest money from everybody and give it to them, which is, of course, the entire philosophy of the entire loathsome Democrat Party.

Gary M. Galles is a professor of economics at Pepperdine University. He wrote an essay on the Mises.org site entitled "A Screed on Need and Greed" that I think underscores this point. He writes, "As Joseph Sobran put it, ‘Need’ now means wanting someone else’s money. ‘Greed’ means wanting to keep your own. And ‘Compassion’ is when a politician arranges the transfer."

He follows that up with a warning from Thomas Paine, "Beware the greedy hand of government, thrusting itself into every corner and crevice."


The Mogambo Guru
for The Daily Reckoning
August 2, 2004

*** The Mogambo Sez: Bill Clinton recently stated that he considered FDR to be the greatest president of the last century. He was not. FDR was the worst president we ever had, as he started us down that long, lonely path to our current socialist and communist proclivities, which are destined to bankrupt the United States.

While the lumpeninvestoriat eagerly opens its brokerage statements, the world’s Big Money peaks at its own balance sheet with dread and horror. Consumer spending and growth are both in the doldrums while inflation thrives, said The Commerce Department on Friday.

The U.S. dollar, in which it put so much money and faith, must soon resume its crumble. It has already lost a third of its value against the euro. By one tally, foreigners hold nearly $9 trillion in U.S. dollar assets. Depending on how they keep score, they’ve lost as much as $3 trillion.

One of the remarkable things about the last few years has been the lack of panic. American investors stood their ground as trillions were taken out of the stock market…largely because they didn’t know any better. But what about foreign dollar holders? Will they hold their positions despite titanic losses? Or will they suddenly panic?

We will see….



Eric Fry, in New York…

– Al-Qaeda is back…or at least the fear of a terrorist attack by al-Qaeda is back. The U.S. Department of Homeland Security – citing recent intelligence reports – warns that terrorists may be planning to blow up iconic U.S. financial structures like the Citicorp Center here in Manhattan, or even the New York Stock Exchange. The warning from Tom Ridge & Co. sparked a sharp rally in gold during last night’s trading in Asia and Europe, while also triggering a sell off in the U.S. dollar and in most overseas stock markets.

– Clearly, the bad boys at al-Qaeda could strike at any time…or not. But the mere threat of terrorism is already terrorizing global stock markets today. Of course, even before the renewed specter of dastardly deeds by al-Qaeda, the U.S. stock market had been victimized by a homegrown terrorism – the insidious, but potent attack of the "sell" order. U.S. stocks, as measured by the S&P 500, fell more than 3% in July, while the Nasdaq tumbled nearly 8%. That, dear reader, is terrifying for most investors…and it seems that the brand new month of August will pick up where July left off.

– The biggest problem for the bulls is that stock buying seems something of a luxury. U.S. stocks aren’t cheap, oil is becoming ever more expensive and the economy seems to be slowing somewhat…So where’s the urgency to buy? On a somewhat related note, when, we wonder, might the urgency to buy real estate – any real estate – also subside? What if the "sell" order should begin to infiltrate the housing market? The mere thought of it sends a shiver down our red, white and blue spines.

– "Let’s face facts, dear reader," Tom Dyson observed last Friday, "neither this [stock market] bounce nor this housing bubble is sustainable. The outlook for over-
geared investors everywhere…whether in stocks or housing…is grim. In the U.K., the authorities are trying to gently prick a record housing bubble; so far, they’ve failed. In the U.S., on the other hand, the authorities are still pandering to it. Neither set of policy wonks will get what they want. Both will get what’s coming. Sell early to avoid the rush."

– Is the congenitally cheery Mr. Dyson too downbeat in this instance? Is his dim view of the housing market justified? We do not know, dear reader…but we too find it difficult to extend our congenital optimism into an upbeat outlook for U.S. home prices. As landed investors ourselves, we are delighted that home prices continue rising and we would prefer to gaze as kindly and lovingly upon the housing market as we would a newborn child.

– But we fear that the wonderful little bundle of joy that we behold may be a kind of changeling, apt to misbehave at any moment. The main risk, dear reader, resides in the fact that many homebuyers are as stretched as the Lycra pants around an NFL lineman. The principal related risk is that most of the nation’s least capable home-buyers have assumed the nation’s most dangerous mortgages, the sort of mortgages that become more expensive to maintain as interest rates rise.

– Across this great country of ours, banks have been providing the most exotic – and dangerous – mortgages to the minority of homebuyers least able to withstand any sort of financial stress, especially the stress of rising rates. The exotica promoted by the nation’s mortgage lenders vary greatly in the details, but not in the net effect. The most dangerous loans rely on some combination of adjustable-rate financing and little to no principal re-payment.

– A brief stroll through the modern mortgage market finds freakish offerings like the Flex-ARM Mortgage. "Each month," the Wall Street Journal explains, "the lender sends the borrower a payment coupon that calculates four payment options: negative amortization, interest only, 30-year fixed and 20-year fixed. The homeowner decides how much to pay. Pros: The bank does all the thinking. Each month it recalculates the balance and tells the borrower how much he or she would owe under different scenarios."

– Cons: the borrower may not be thinking at all.

– Another novelty offered by the nation’s lenders is the "Negative Amortization Mortgage," an interest-only loan that allows buyers to pay LESS than the full amount of interest necessary to cover the costs of the mortgage. The difference between the full amount and the amount paid each month is added to the balance of the loan. In other words, the homeowner may skip paying part of the interest owed, as well as any of the principal owed. "This loan is best for borrowers with large cash reserves who want the flexibility of lower payments during certain parts of the year but plan to pay off loans in large chunks during other parts," the Journal helpfully explains.

– We would point out, however, that these loans are also ideal for borrowers who are in debt way over their heads and who have no prayer of repaying their mortgages. Our personal favorites here at the Daily Reckoning are the so-called 103s and 107s. These loans require no down payment and allow people to borrow 3% to 7% more than their house is worth. "They are best for people with large cash reserves who prefer to invest in, say, the stock market rather than tying up assets in real estate," the Journal confidently surmises.

– Ahhh…right.

Bill Bonner, back in Charlottesville…

*** "They seemed like they were a bit too countrified…you know…they hadn’t really been anywhere." Jules had been asked what he thought of the University of Virginia after attending an introductory session. He was describing the students, from a teenage euro-snob perspective.

"They just didn’t seem as lively as they were in New York or Boston. They seemed more like cheerleaders and football players."

We have been accompanying the 16-year-old on his college tours. The effect of the visits has been to make both father and son wonder whether Jules should bother going to college at all. Several of the students leading the tours seemed to be almost illiterate. Some couldn’t form a complete sentence; the predicate kept getting separated from the subject and verb by a ‘like’ or a ‘you know.’ Others seemed stupid. And these, we presumed, were the students the schools were proud of.

We will give you an example: a woman leading a group of prospective students around a New England college pointed out that the school had ‘rescued’ a neighboring piece of property ‘from capitalism.’ What she meant by that we don’t know…but no one bothered to ask; somehow we knew it would be a waste of time.

The average American college student – as near as we can tell – is about as well educated as a person with an 8th grade education 100 years ago. Some explain this as a kind of inflation of the education system. A dollar is worth about 5% of what it was worth 100 years ago, so is a college degree.

But after looking at college course offerings for the last few weeks, we have another explanation: much of the time spent at the modern university is not merely a waste a time, but an absolute negative; many courses do not add educational value; they subtract it.

Imagine, for example, an economist trained in Marxist theory. His ‘labor theory of value’ is not merely wrong, it is anti-learning, worse than no learning at all, because it leaves its holder with the mistaken impression that he knows something. Not only does he know nothing…but less than nothing. If he is lucky, gradually he’ll get the dumb ideas knocked out of him by real life…and finally – after years of re-education – he’ll get back to zero.

Only then will he be able to begin learning again. Otherwise, it will be as if he had been eating a meal of ground glass and tried to finish it off with a big plate of apple cobbler. The result would still be indigestible…

Judging form the course catalogs, the average student at the average institution of higher learning will be lucky to come out with as much knowledge as he went in with. To do so, he will have to dodge dopey professors of economics, race relations, gender studies, government, sociology, history, political science, psychology and environment. For some unknown reason, environmental science seems to have the same effect on students’ minds as the Amazon river on an iceberg. All their good sense melts away in minutes.
All of a sudden they come to believe the most remarkable things. The earth is getting too hot…there are too many people and not enough parking places…there’s something practically divine about public transportation…and oil is Liquid Sin.

*** "It’s not exactly like other areas of the U.S. This real estate market is very special. But the effect has been about the same – prices are way up."

We are still on the East Coast. And still in the midst of a real estate boom. It is a major subject of conversation wherever we go – that, and college tuition.

"People from New York are coming down here and buying up the farms," continued our source. "Local people can’t afford them anymore."

Charlottesville was declared the best places to live in America by one rating service. It is near the top in nearly everyone’s book. Dominated by the University of Virginia, which was founded and designed by Thomas Jefferson, it is a pretty place, with quaint houses, big trees, grand brick buildings in the Georgian/Palladian style and a friendly, small-town atmosphere.

"The Charlottesville area is not attracting many people looking for jobs," our friend went on. "People don’t come here looking for jobs – except at the university. Because there aren’t many jobs. So, we’re not getting that middle-class sprawl that you have around most cities.

"But it’s a beautiful and great place to live. So it’s attracting rich people from all over the country who appreciate the lifestyle and the beauty of the place. These people have been coming in for a long time. But in the last three years prices have doubled. I don’t know where the money is coming from…but there’s a lot of it. For example, there’s a 1500-acre farm with a Federal-period house on it with some historical importance. It’s in Keswick, which is one of the best areas around. And they’re asking $24 million for the place."

This comes as bad news for the Bonner household.

"We should have bought something a few years ago," said Elizabeth.

With relatives in the area, we had planned to retire here when we came back from Europe. Now, we won’t be able to afford the lifestyle to which we hoped to become accustomed. Unless prices fall.

*** Poor Mike Tyson. The prizefighter, once among the world’s richest men, is now among its poorest. "Mike Tyson filed for bankruptcy in August last year," reports our summer intern Holly Hickling. "Right now he’s trying to make a comeback in boxing to pay off some of his
debt. And he’s trying to be respectable – no hyped-up pre-match insults, etc."

His profligacy has forced him into indentured servitude. Tyson earned an estimated $400 million during his glory days. But he spent it on mansions, cars, women, and jewelry. The rest he wasted.

But when his earnings fell – he brought in only 24 dollars in February, according to court documents – his spending didn’t. So now he’s working as slave to the U.S. government – indentured to do the world’s most dangerous work until he pays off his nearly $20 million tax bill.

The Daily Reckoning