You Don’t Get Rich by Paying Interest

I hate to state the obvious here, but sometimes the obvious has to be stated.  If you want to accumulate significant wealth, you aren’t going to do it by paying interest.  You have to collect interest.

When I use the term “interest”, it can really be any kind of investment return.  You pay interest to a bank if you take out a loan from that bank.  You earn interest (although not very much these days) from a bank when you lend your money to the bank in many cases.

But you can also get a return on your money (similar to collecting interest) in an investment.  The potential interest or investment return typically correlates with the risk involved.  If you stand to make a lot of money off of an investment, there are usually greater risks for losing the money you invest.

My issue is when I hear people say things such as, “I decided to buy a bigger house because interest rates are low and it will be a great investment in the long run.”

If you bought real estate in California three decades ago (or even 8 years ago), this would have been mostly true except that interest rates weren’t as low then.  But taking away from the boom periods in housing, buying a house is a consumer good.  If you take out a larger loan to buy a bigger house, then you will be paying more interest to the bank.  You will also be paying higher property taxes and more for upkeep.

There is nothing wrong with buying a bigger house, but it should be because you want it for what is essentially a consumption item.  You want to enjoy where you live.  Unless you get lucky with a real estate boom in your area, then it is not an investment.

This holds even more true for most other consumable items.  If you buy a nicer car than necessary, then you are just paying more for a consumable good (you only need a working car for the purpose of transportation).  If you take out a loan, you will be paying more in interest.

You don’t get rich by paying interest.  You get rich by collecting interest (or investment returns).

There are some people who have gotten rich off of investment real estate.  You may say, “Well, they took out big loans and paid a lot of interest, yet they made out really well.”  But the key here is that they collected more in investment returns (from renters) than they were paying out in interest.  The successful real estate investors usually get positive cash flow, meaning their returns are greater than their expenses.

You get rich by owning assets that produce cash flow.  This can be stocks, bonds, real estate, or a successful business.

This may sound funny coming from a guy who advocates gold.  But I’ve never claimed that anyone is going to get super rich from investing in gold.  You can get a positive real return on gold during times of significant inflation, but the primary reasons I advocate owning gold are for insurance and diversification.

Again, my key takeaway here is that you are not likely to get rich if you are continually paying interest to someone else, unless it is for a loan that is generating even more income.

In most cases, people take out loans for consumer goods.  The biggest trick is housing because people delude themselves into thinking it is a good investment when it usually isn’t.  They justify a big mortgage saying that they can deduct the interest paid on their income tax return.  This has to be one of the worst reasons possible for getting a big mortgage and paying interest to the bank.

If you want to accumulate significant wealth, don’t keep paying out interest.  Even in an inflationary environment, it doesn’t do you much good unless the underlying asset is increasing significantly.  Even if you are paying back a loan in depreciating dollars, you are still the one paying the interest.

You don’t get rich by paying interest.  You get rich by owning assets that collect interest for you.

Republican Fail on Obamacare

Since Donald Trump was elected president, I have stated often that the biggest test for both Trump and the Republicans will be whether or not they repeal Obamacare.

We have heard this “repeal and replace” nonsense since before Mitt Romney was the Republican nominee over 4 years ago.  Romney had to run on that platform because he instituted something similar to Obamacare in Massachusetts before Obamacare ever existed.  It made it tough for Romney to go after the entire legislation.  He couldn’t make comments to the effect of “How could anyone be so stupid or so tyrannical as to force people to buy something?”

Since the Republican electorate’s blunder of putting Romney up as the nominee, we have heard “repeal and replace” a lot.  But we didn’t often hear specifics on what the “replace” part would look like.

We finally found out recently with the legislation pushed by Paul Ryan.  It became known by many as Obamacare lite.

The House Republicans have pushed legislation for an outright repeal of the so-called Affordable Care Act for many years now.  Just last year, a bill finally reached Obama’s desk, which was promptly vetoed.  The Republicans thought they had no risk of sending such a bill to Obama’s desk because they knew he would just veto it.  But they thought wrong because now much of the country – at least those who are somewhat informed – see the Republicans in Congress as a bunch of hypocrites.  Now that Trump is president, they aren’t voting on a bill for a full repeal.

Trump also looks foolish at this point.  I know some will laugh at that remark, as half the country thinks he is foolish anyway.  But he did get elected, even if he did not officially win the popular vote.  He was elected because he took his message to the people and claimed to be an advocate of the average working American.  He showed some empathy for the suffering middle class.

But one of the main reasons for the suffering middle class is the unbelievably high cost of health insurance.  When a family of four is paying $10,000 or more per year for a policy that barely covers anything, that really puts a dent in their family budget.  It makes it tough to take vacations, save money for retirement, or just get braces for the kids.

Of course, the entire government apparatus is a major problem as the federal government alone sucks up close to a quarter of our income.  Then it burdens us more with regulations on almost everything.  When you add up state, local, and federal spending, the total government spending is about the same as the median income for a family.

Trump has been decent so far in terms of advocating fewer regulations.  But on the spending side, he has been mostly terrible.  His little proposed cuts in domestic spending were offset by more military spending.

Despite all of that, the one major thing that Trump has to get right over the next 4 years is a lowering of health insurance premiums and medical care costs in general.  If costs continue to go higher, even at a slower rate, then Trump is going to be smashed in the next election.

The people who voted for Trump want to see some real results.  They took a risk with Trump.  Or maybe they didn’t take a risk in the sense that they figured he couldn’t do any worse than the typical politician.  But if Trump ends up being something like a typical politician, then he will surely lose the next time around.  I am not saying that his supporters will be voting for Elizabeth Warren or whoever is the Democratic nominee, but some of his current supporters may get turned off of politics and stay home.

Trump made a massive mistake in working with the snake that is Paul Ryan.  Perhaps that is an insult to snakes.

Trump really messed up this week when his administration basically said that if this legislation doesn’t pass, then Obamacare is here to stay.  If that was supposed to be some kind of threat to the thirty or so conservatives in the House who oppose the Ryan bill, then they called his bluff really quickly.

If Trump had been smart, he would have proposed his own bill.  He should have been working on it between the day after the election and his inauguration.  It should have been a full repeal.  He could have added in proposals to allow health insurance to be sold across state lines.  He could have added in tax credits and expanded HSA accounts.  Regardless, he needed a full repeal first.

Trump lost a lot of points in this political battle.  This is still his first 100 days and he completely blew it.  If he does not get Obamacare fully repealed, he is almost guaranteed to lose the next election if he even runs.

Paul Ryan also failed miserably.   I am happy about this.  He deserves to go down.  He is the typical Republican politician who campaigned for smaller government and fiscal conservatism.  He claimed to be a follower of Ayn Rand.  He got into power and became a hack and a shill for big government.

This was the biggest test for the Republicans and they just failed.  The fiscal conservatives who stood against the Ryan bill won this battle.  This probably won’t be the end of it.  If it is, then the Republicans are going down in less than two years and Trump is going down in 2020.

Yield Curve Slightly Flattening in March

The yield curve has been flattening slightly in the month of March.  First, let’s look at the numbers.

I looked at the yields posted by the Treasury.  On March 1, 2017, the one-month rate was. 0.46%.  On March 22, 2017, it had gone up to 0.74%.  During that same time period, the 30-year rate fell slightly from 3.06% to 3.02%.  The 10-year rate fell from 2.46% to 2.40%.

The longer-term rates had actually been going up in the early part of the month, but then started falling around the middle of the month.  When stocks took a tumble this week, the long-term rates fell, while the short-term rates continued upwards.

An inverted yield curve – where long-term rates fall below short-term rates – is a major recession indicator.  Investors are locking in long-term rates, while short-term borrowing is higher in demand.

We are still far away from an inverted yield curve, but a flattening can signal trouble ahead.  It is hard to say whether or not this is just a blip that will reverse.

If I were Trump, I would stop bragging about the stock market or any positive economic indicators for that matter.  When you live by the sword, you also die by the sword.

Trump was warning during his campaign last year that stocks were in a bubble.  If he kept his mouth shut now, at least he could point to those remarks if there is a major downturn.  But if he keeps bragging about stocks hitting new highs, it is going to completely negate any earlier comments where he warned of a possible bubble.  After all, if he claims any credit now for any good news, then he has to take the blame when bad news hits.

Even though we appear to be in something of a mini-boom right now, at least for some assets, this can quickly change.  The Fed has kept a tight monetary policy for the last two and a half years.  QE3 ended in October 2014.  While the increase in short-term rates is not a complete game changer yet, it does not help the economic picture.

From my perspective, we need a correction, even though it will be painful.  It is better to have the correction now than to delay it and have it even worse in the future.  Resources have been misallocated due to previous Fed money creation.  A correction is what is needed in order to reallocate resources to their best use in accordance with consumer demand.  We also likely need a higher savings rate than what currently exists.

Sustainable economic growth comes from production.  Production comes from savings and capital investment.  But the production has to be in accordance with consumer demand, which happens in a free market.  If things are being produced that are not part of our highest priorities as consumers, then it makes us poorer than we otherwise would have been.

It is important that when we do get a correction that the Fed and the government do not try to “fix it”.  They need to let the resources reallocate properly.  Otherwise, they will set us up for more trouble in the future.

Unfortunately, if we hit a major downturn, I don’t think the Fed will do nothing.  They will return to digital money printing.  That is the biggest reason to own some gold as part of your investments.

Why Trump’s Budget Won’t Help the Economy

Donald Trump’s administration released a preliminary budget proposal for FY 2018.  This budget year begins on October 1, 2017.

There is predictably wailing and crying from the left about massive budget cuts.  When politicians complain about budget cuts, these are usually just cuts in the rate of projected growth.  In the case of Trump’s budget proposal, there are actual cuts in many departments and government programs.

But before the libertarians and fiscal conservatives out there get too excited, the overall picture doesn’t look so good.  While many of the departments would experience budget cuts if Trump has his way, there are a few areas that aren’t being cut, or are being increased.

The Department of Veterans Affairs (+6%), the Department of Homeland Security (+7%), and the Defense Department (+9%) would all see increases under Trump’s budget.  Meanwhile, we don’t hear much spoken about the supposed non-discretionary spending of Medicare, Medicaid, and Social Security, which were not part of Trump’s recent proposal.  Of course, these are discretionary, but they are non-discretionary to politicians and most of the electorate.

The problem here is that Medicare, Medicaid, Social Security, military spending, and interest on the national debt account for over 80% of the total federal budget.  If this is going up, then the overall picture doesn’t look good for spending critics, even if much of the rest of the 20% is seeing some actual cuts.

The bottom line is that the total federal budget will still come in around $4 trillion if Trump’s proposal were enacted.  This would simply shift some spending from mostly domestic programs to military spending.  And while the domestic programs are certainly wasteful and a misallocation of resources, the military spending is usually worse.

If you reduce or eliminate grants for teacher training, loan guarantees for alternative energy, funding for the arts, and climate change prevention programs (among many things), then all libertarians should be able to cheer this.  Whether or not you think these are noble causes is irrelevant to the libertarian who does not see it as a function of government if the state is to have any function at all.

These programs are harmful to our living standards as they misdirect resources away from higher priorities for consumers.

However, some military spending is far worse in that it is completely wasteful or actually destructive.  If more money is spent to fight more wars, then this is destructive both in terms of lives and wealth (as well as civil liberties in many cases).  Even if money is spent on tanks and helicopters for more drills and bases in faraway lands, it is still a waste of resources.

At least with some domestic spending, there is some benefit at times.  Sure, the government destroys the education system and the medical care system, but at least some expenditures are useful, even if they are a misallocation of resources.  The government could spend money to buy everyone in the country a new television.  Some people don’t want or need a new television.  If anyone wants a new television, they could go out and buy it themselves instead of having the government do it for them.  But if such a government program existed, at least there would be some use for the resources, even if they are misdirected.  In the case of much of the military spending, it is completely wasteful or outright destructive.

Virtually all government spending is a misallocation of resources.  It is impossible for the government or anyone else to match up consumer preferences except for the consumers themselves.

The federal government, under Trump’s proposal, would continue to spend $4 trillion annually.  The government is sucking up resources that could be put to better use.  Of course, the government also destroys wealth and prevents future wealth creation through its tens of thousands of pages of rules and regulations.

The scary thing about Trump’s proposal is that it is just a starting point.  The way bipartisanship works in Washington DC is that both sides compromise by giving each side the bigger government they want.  The different sides will come to an agreement to allow the increased spending for the military while reducing the cuts proposed for domestic programs.

If Trump actually wants to significantly help the U.S. economy and the struggling American middle class, then he needs to get substantial cuts to both regulations and overall spending.  We need a sharp overall decrease in the federal budget which would put resources back in the hands of consumers and investors.

Savings and capital investment are what ultimately lead to higher living standards.  For this, we need a massive reduction in government.

FOMC Monetary Policy – March 15, 2017

The FOMC released its latest statement on monetary policy.  As expected, it raised its target federal funds rate by one-quarter of a percentage point.  The target range is now 0.75% to 1%.  There was one dissenting member who wanted to maintain the existing rate.

This was not a surprise.  The market had already priced in this rate hike.  The Fed is now indicating that two more rate hikes are likely this year.  Stocks, bonds, and gold all soared.

The subject is now coming up about the Fed’s balance sheet of approximately $4.5 trillion.  Yellen is indicating that the federal funds rate is the main tool that is being used and considered at this moment.

The Fed has been rolling over maturing debt.  It has been its policy for a long time now.  The Fed could drain its balance sheet by letting debt mature and not replacing it.  But the Fed has little incentive to do such a thing, even though this has been talked about ever since the dramatic expansion began with QE1 in 2008/ 2009.

The Fed ended QE3 in October 2014.  It has been almost 2 and a half years, and miraculously there has been no recession yet.  The Fed’s easy money from the past has not haunted us directly yet.  The malinvestment in the oil market showed up, but not much else.  It has likely contributed to slow growth and a lack of savings and capital investment.  It has prevented a strong base for actual prosperity.  But we have not seen the major malinvestment exposed yet.

As long as the excess reserves do not pour out of the commercial banks, then I don’t expect price inflation to go considerably higher.  If price inflation does not go considerably higher, then I don’t expect the Fed to drain its balance sheet.  What would be its incentive?

The CPI numbers just came in for February.  The CPI for February showed an increase 0.1% from the previous month.  But the year-over-year is now 2.7%.  The more stable median CPI continues to show a 2.5% increase from 12 months ago.  According to the FOMC and Yellen, inflation expectations are still below their 2% target.

As I have stressed many times in the past, the Fed is not hiking its target rate by selling off assets, as it would have done in prior times.  Instead, it is raising its target rate by paying a higher interest rate to banks for their reserves.  This is free money for the banks.  It is also less money that the Fed will remit back to the Treasury at the end of each year.  If anything, this will just increase the deficit.

Right now, it is a wait-and-see game.  It is a wait-and-see game for the Fed, and it is really a wait-and-see game for us as investors and just as participants in the economy.  We’ll see if these rate hikes contribute at all to a shrinking money supply.  The only way this is possible is if it is enough to encourage banks to lend even less than they already were.

While the Fed’s target rate (overnight borrowing rate for banks) is not completely meaningless, we have to keep our eyes on the big picture.  This includes the Fed’s balance sheet, the excess reserves held by banks, and the price inflation rate.  The demand for money is also important, but that is virtually impossible to measure until after the fact.

We may be in something of a mini-boom right now, at least with some assets.  But middle class America is struggling.  And at this point, I still believe there is more downside for stocks than upside.  Is it worth getting another 10% out of stocks with the risk of them falling 30% or more?  Diversification is important now, and having a decent cash position is a good idea.  If we hit a recession, you can use the cash to purchase assets that have fallen in price.

SEC Denies Bitcoin ETF

The Securities and Exchange Commission (SEC) recently denied a request to list an exchange-traded fund (ETF) that would have tracked Bitcoin.

For comparison, this would be similar to an ETF that tracks gold such as GLD.  In the case of an ETF holding bitcoins, there would be no physical inventory to hold since bitcoins are electronic.

I am not as optimistic as some libertarians regarding Bitcoin.  I don’t think it is likely to serve as a common form of money.  Still, I am in favor of competition to the Federal Reserve and its monopoly over the U.S. dollar.  If competition includes cryptocurrencies, then it is all for the better.

The problem is that the government does not want the competition. That is why there are legal tender laws.  The best thing that could happen to our monetary system is for competition to be legalized.  People should be free to use anything they want for money.  Legal tender laws should be abolished, and taxes on gold (among other things) should be abolished.

This latest move by the SEC shows just how rigged the marketplace really is.  This isn’t just a monetary issue, but also an issue of financial regulation in general.  Why do we need an SEC that has to approve a listing on the stock exchange?

This is just another issue that people take for granted.  They don’t consider that we don’t need the government to approve what gets listed for public trading.  They don’t consider whether we need an SEC at all.

After this announcement, the price of bitcoins went down, although has largely recovered since then.  Of course, when we speak of price, it is the number of dollars that bitcoins will redeem.  The fact that we  put everything in terms of dollars should tell us something.  Whether we like it or not, the U.S. dollar – at least to Americans – is the main form of money.

You can’t walk into most stores and pay with Bitcoin.  You can’t even use it that much through online shopping.  There are very few places that accept Bitcoin for payment.

Maybe this Bitcoin ETF will still go through at some point.  If it does, I would consider investing a small amount in it.  Actually, the term investing may not be as accurate as the term speculating.  It really is a crap shoot.

I much prefer gold to Bitcoin.  Gold has a history of thousands of years as compared to less than a decade for Bitcoin.  Still, I like the competition, and I like the attention that it receives.  If it leads to more people educating themselves about certain aspects of the monetary system, then we will be better off for it.

We should get rid of the SEC.  Unfortunately, people think it is there to protect them.  How did that work out for the Bernie Madoff investors?

We should also get rid of the Fed.  But we really just need to legalize competition for money.  That will phase out the Fed over time.  That will accomplish what we need, while also providing some stability to the monetary system.

How I Used Fiverr to Debunk Trump’s Economics

While I have defended Trump at times from some of his critics, I have never been a fan of Trump’s economics.  He gets a few things right (such as reducing government regulations), but he is mostly bad when it comes to issues of free trade and government spending.  Trump falsely believes that government spending can help the economy.

One thing about Trump is that, perhaps naively, I see a hint of integrity in him.  Unlike most other politicians, I have this little bit of optimism that he might actually do the right thing if he has the right information and has processed it correctly.

And that leads me to my latest project and how it will help debunk Trump’s economics.  There are two different lessons here.

I recently finished writing a book on free market economics.  Actually, I finished most of the writing a couple of months ago, but it takes a little time to do the final editing and prepare it for publishing.

When I started the book, Trump was not even a declared candidate for president.  I was working on the book a lot during his campaign, but I wasn’t writing it at all with Trump in mind.  Still, when I look at the book now, somebody like Trump (or a major Trump supporter) could really learn a lot from what I wrote.  I could say the same thing about Hillary Clinton, but I don’t think she is honest.  Even if she read and understood the content, she would be thinking of ways to use the information for her own power.

My book is non-partisan in the sense that I don’t talk about political parties.  It is strictly dealing with economics and how the government reduces our living standards.  I wrote it so that it would be just as applicable 20 years from now as it is today.  Still, I think the book does a good job of debunking many of the economic fallacies that Trump believes, even though I had no intention of doing that.

There is a second lesson here also that I would like to share.  As I finished preparing my book, I used Fiverr.com for the first time (where most things are actually more than five dollars).

For the cover design, I outsourced it to someone in the United States (California, I think).  It cost me $40 plus a $2 processing fee, and I was able to pick a picture, get a cover design, and get the designs for both Kindle (digital) and CreateSpace (hard copy).  She did exactly as I requested and gave me a cover design that I liked.

One thing I didn’t realize is that I had to give her an exact page count for the CreateSpace cover.  I think it is because it determines the width of the spine of the book.  I had to rush to get a good page count, even though I already had the electronic version complete.

I started researching and watching YouTube videos on how to format for CreateSpace in Microsoft Word.  I was struggling with the margins and footers and everything else.

So I went back to Fiverr.  I found a guy in Ukraine who would do it for ten bucks.  I figured I didn’t have much to lose.  I described how I wanted it formatted, and he returned it to me within 24 hours.  I requested one minor revision and got it back quickly again.  It was just how I wanted it.  I tipped him an extra five bucks for the effort.

So here is the lesson for Trump.  I outsourced my work to this guy in Ukraine (a country that has been put into further chaos by the U.S. government’s help to overthrow the government there).  For a small amount of money (to me), I was able to save probably many hours of headaches.  This was a voluntary agreement enabled by Fiverr.  We both benefitted from the arrangement (as did Fiverr).

If it had cost $50 for someone in the United States to format my document, maybe I just would have spent the extra hours and struggled through it myself.  But for such a cheap price, it was easily worth it for me to outsource the job.  Meanwhile, this guy in Ukraine is obviously happy to work for this amount.  This is a very poor country, and 10 dollars probably goes a long way there.  Plus, when you have little to begin with, any little bit helps.

I have no idea how long it took him to do this.  Maybe it took him an hour because he has become really good at what he does.  My guess is that it probably took him a couple of hours.  But for him, making 10 dollars for a couple of hours of work is worth it.

According to Trump economics, I shouldn’t be outsourcing my work. I should be hiring an American to do the job.  But I wouldn’t have hired an American unless the person was willing to work cheaply.  And most Americans wouldn’t spend a couple of hours to format a document for 10 dollars.  Of course, most Americans wouldn’t know how to do that either.

Free and open trade is beneficial for everyone.  It is one of the themes of my new book.  It was demonstrated effectively with my use of Fiverr.

As a side note, Fiverr can be used for many tasks.  My recommendation is to be precise in your search and to check the reviews carefully.

As for my new book, it will be released shortly.  I will run a promotional at some point where you can download it for free through Kindle.  I will post something on here when it becomes available and I run the promotional.

Surprise: The CIA is a Criminal Organization

Wikileaks has released documents exposing the extent of the CIA’s spying and its criminality.  For any libertarian, this should come as no surprise.  But perhaps it will be a turning point for more Americans to examine this horrible government agency.

First, here is what I am not saying.  I am not saying that every person who works for the organization is a criminal.  I am also not saying that the agency has never done anything good.

What I am saying is that, on net, the agency is bad.  It should be abolished immediately.  And we don’t even know a small percentage of the horrible things that it plots and does.  We don’t know how many government overthrows and assassinations are attempted by the CIA.

Thanks to these latest documents and at least one brave whistleblower, we can now provide stronger evidence of the CIA’s criminality.  I don’t use that word lightly either.

There are two things in particular that stuck out to me right away.  As more people comb through all of the documents, we can be sure that much more will come to light.

The first interesting thing is that the CIA had plans to hack automobiles in order to assassinate people without being detected.

If you are familiar with the story of Michael Hastings, this is particularly interesting.  Hastings was a journalist who died in a car accident in 2013, except we aren’t sure about the word “accident”.

Hastings was doing some investigative journalism (reportedly about the CIA itself) and feared that his life was in danger.  After his death, there were speculations that his car was hacked and made to speed up and crash.  Now with the latest Wikileaks cables, the conspiracy theorists don’t seem so crazy anymore.

The second major thing that caught my attention was that the CIA stole Russian malware in order to blame the Russians for cyber attacks.  Of course, this could not have come at a more perfect time.

If these Wikileaks documents had been released in October 2016, we never would have heard any allegations of the Russians hacking the U.S. elections.  Instead, they would have found something else or someone else to blame for Trump’s victory.

This whole thing about the Russians hacking the election is a lie.  It is a CIA lie.  And now we have these documents to show that the CIA specifically planned to blame Russia for cyber attacks.  When this was planned, they didn’t know that Donald Trump would win the election, but it sure came in handy for them when he did.  Now it has all back-fired on the CIA.

These are just two of the big things.  There are many others.  These documents show the CIA’s ability to control people’s electronic devices to spy on them.  They can watch you through your television if it has a camera.  They can listen to you through your cell phone.  Again, this is nothing new to me, but at least there is some evidence now.  And again, the conspiracy theorists don’t seem so crazy any longer.

I have warned previously about the major danger of the NSA and the spy state.  I have warned about the dangers of the CIA.  This is all part of what is now termed the deep state.  As Donald Trump is finding out, it is very hard to fight the deep state.  Kennedy tried to fight the CIA, and look where he ended up.

So what is the solution to this?  The solution is for Americans to care.    When Edward Snowden did America a favor by exposing the spying of the NSA, most people shrugged their shoulders.  There were a few that cared.

If Americans tolerate this from their government, then it will continue.  And the answer isn’t to reform any agencies or get the right people in office.  The answer is to eliminate these agencies.  At the very least, we need massive budget cuts.

I believe that only the American people can force this to happen.  They have to demand that their so-called representatives in Congress defund these corrupt agencies.  Until there are major budget cuts, unfortunately, not a lot is going to change.

Unintended Consequences of Paid Family Leave

In Trump’s recent speech before Congress, he stated the following:

“My administration wants to work with members in both parties to make childcare accessible and affordable, to help ensure new parents have paid family leave, to invest in women’s health, and to promote clean air and clear water, and to rebuild our military and our infrastructure.”

This one sentence spoken by Trump is filled with so much Keynesianism and economic fallacies that it should make any libertarian cringe.  It should make anyone hold onto their wallet.

For this particular post, I want to focus on his proposal to have paid family leave.  Of course, any company that wants to offer paid family leave as an employee benefit is free to do so.  Therefore, by Trump bringing this up, he is implying that the federal government would force companies to offer some kind of paid family leave.

According to the TurboTax website, Paid Family Leave (PFL) is defined as follows, at least for tax purposes:

Paid Family Leave (PFL) income is money you receive from your employer, an insurer, or the government while you are away from work for an extended period of time so you can recover from a serious health issue, take care of a seriously ill family member, or bond with your newborn or newly adopted child.”

As with almost all government programs, there are unintended consequences.  In fact, many government programs end up doing the exact opposite of their stated intention.  For paid family leave, it could end up hurting the people that it is supposed to help.

Whether it is economic ignorance or evil intentions that drive politicians to support these laws, it does nothing to negate the fact that they are harmful to a free society.

For a libertarian, the first problem with any kind of paid family leave as required by the government is that it is immoral.  It is using the threat of force to compel employers to do something.  If an employer and an employee want to trade (an employer gives up money, while an employee gives up his time and labor), then they should be free to do so without having any requirement of the employer paying family leave.

The second major problem is that this is a cost to employers, and it ultimately makes up poorer.  It hurts employers, employees, investors, and consumers.

Let’s say that an employer has to pay an employee for 8 weeks if that employee has a newborn child.  This could be for either a mother or a father.  If someone takes off for 8 weeks and gets paid, then the employer is paying that employee to do nothing for 8 weeks.  And, of course, the law prohibits the employer from firing the employee during this time.

There are any number of consequences from this.  In many cases, it is probably a combination of consequences that impact different groups of people.

It may hurt the people who never use paid family leave because they have to keep working while others are taking time off and getting paid.  It could hurt investors who find that their companies are less profitable because of the added expense.  It could ultimately hurt consumers if companies are able to pass down some of the added expenses in the form of higher prices, especially if competitors are forced to incur the same added expenses.

What many don’t think about is the cost it could actually have on those who would be most likely to use the paid family leave.  If an employer is going to hire someone who is about to have a baby, or even is at an age where they are more likely to have a baby, then the employer may factor in the added expense of paid family leave.  The employer might offer a lower salary than it otherwise would have.

Even worse for the potential employee, an employer might be more willing to hire someone who is less likely to have babies.  Maybe the employer will hire a 40-year old who already has some older kids over a 30-year old who is recently married.  Or maybe the employer will prefer a 20-year old who is not married.

The problem here, aside from the immorality of using force, is that such a law distorts the marketplace.  It puts employers on the back burner, which eventually just hurts the employees and the consumers.

In a free society, people (which includes companies) should be free to engage in voluntary associations as they wish.  Many companies will offer specific employee benefits, but they weigh these costs when they offer them.  Employers compete against each other to obtain good employees.  Employees compete against each other for jobs and the salaries and benefits that they offer.  A free market system offers some harmony in this process.

When the government distorts this process, such as requiring paid family leave, it makes the whole process less efficient.  It misallocates resources, and it ultimately hurts production.  It ultimately makes our living standards lower than they otherwise would have been.

Trump Gives Anti-Liberty Speech

Donald Trump gave his first major speech since his inauguration in an address to Congress, which was really an address to the American people.

I tuned in late.  I turned it on just before 10:00 EST.  It showed a woman in tears listening to thunderous applause.  My wife immediately said that she must be a widow of a fallen soldier.  My response: I only know of one fallen soldier in combat since Trump became president.  Sure enough, it was the widow of this U.S. soldier.

Trump stated, quoting General Mattis, that “Ryan was a part of a highly successful raid that generated large amounts of vital intelligence that will lead to many more victories in the future against our enemies.”

Ryan Owens was a Navy seal who died on January 29, 2017, just nine days after Trump took office.  He died in a raid in Yemen.

When I heard about his death, my first thought was: “I didn’t know there were U.S. boots on the ground in Yemen.”  I knew the U.S. helped Saudi Arabia in starving and drone bombing the people of Yemen, but I didn’t know there were troops on the ground.  It doesn’t surprise me though.

Of the seven countries that Trump tried to put a temporary immigration ban on, the U.S. is bombing and killing civilians in 6 of them.  The seventh is Iran, which the U.S. has imposed sanctions and threatened war repeatedly.

This widow was put out there by Trump as a political pawn.  She was being used for political purposes.  Trump followed in the footsteps of many presidents before him.  I had slight hope that maybe he was better than that, but apparently not.

This woman’s husband did not die in a highly successful raid.  If it was successful at all, it was only for the military-industrial complex and the establishment that is so thrilled with war and empire.  Are we supposed to believe he was there doing something important other than helping to starve and murder innocent people in Yemen?

This is the militarism that is so rampant in the United States.  Can people wake up and wonder why this guy was in Yemen in the first place?  Does anyone honestly believe he was defending our freedom by being in Yemen?

Trump’s overall speech (which I read the text of) was horrible from a libertarian viewpoint.  The only good thing about it is that he didn’t threaten war with Russia or Iran, although he did mention imposing new sanctions on Iran, which could be seen as an act of war.

Trump was more politically correct than normal, and he did not put any emphasis on the things that libertarians would normally cheer.

On economics, he continues to be terrible.  He used the tyrant Lincoln in order to defend his proposed tariffs.  He keeps saying we need to hire American and buy American.  Trump is either playing on the economic ignorance of the populace, or he is economically ignorant himself.  I think it is both.  We should not be trying to save jobs in the United States.

While Trump says he is going to cut income taxes and corporate taxes, we can’t really be sure to what extent and if there will be tax hikes in tandem.  Still, it doesn’t matter much because he doesn’t want to cut government spending, which is the biggest economic problem there is.  Instead, he proposes one trillion dollars in new infrastructure spending.  He also says he wants one of the largest increases in national defense spending in American history.

Tax cuts won’t mean much if government spending continues to balloon.  It is still capital that is being sucked out of the private sector and being misallocated.  It is money being spent according to politicians and bureaucrats, and not being spent or saved by the individuals who actually earned it.

Trump also said he wants to “make childcare accessible and affordable” and “to help ensure new parents have paid family leave”.  I guess he was channeling Bernie Sanders on this.

Actually, the whole speech could have been taken out of the Bill Clinton playbook.  It was actually classic Clinton.  He had the welfare programs.  He had the widows and the tears.  He had all of the new government spending, while still pretending to be a defender of freedom.

This speech might have somewhat pleased the establishment.  It might have pleased some of those who live in a state of economic ignorance, although I’m sure many in that same group were opposed to his speech simply because the words were being spoken by Trump.

From a libertarian perspective, this speech was mostly a disaster.  He was bad on almost everything.  If this is any indication of how the next four years will be, then I am not going to feel sorry for Trump.

Stocks continue to hit all-time highs.  The Dow went above 21,000 after his speech.  The economy may be in a mini-boom cycle right now, at least in terms of stocks, but it isn’t going to last.  The longer it lasts, the more painful it will be.  Trump is most likely going to have to deal with this.  Maybe he can find someone who understands some basic economics that he will listen to.  One can always dream.

Combining Free Market Economics with Investing