The Fix Is In.

October 24, 2011

Amidst the caterwauling from those representing the Occupy Wall Street (OWS) movement, an underreported yet interesting item whispered across the newswires. Washington D.C. edged out Silicon Valley as the wealthiest metropolitan area in the nation.
Washington, Jefferson and Franklin would be appalled.
While the national median income for 2010 was $50,046, the typical Washington metro household earned nearly $85,000. Total compensation for federal workers, including health care, averaged $126,369.
Lobbyists. Various firms plying the largesse of government reform. Forgot about Wall Street. K Street is paved with gold. At least Manhattan represents a bit of a meritocracy whereby one must deliver some shareholder value. In D.C.? Overpromise. Under deliver. Then raise a billion dollar war chest and campaign anew.
D.C. also happens to be home to some of our poorest, as well. So, while the political duopolists beat the drums of class warfare, the capital is home to our largest income disparities. Of course, our politicians live by another standard, one unlike those to which they hold us.
For more on this topic, click here.
Meanwhile, the overpaid denizens of D.C. continue to drive the economy over the cliff.
The Fed is mulling over plans to tell the public how it will steer the economy in the future. Talk of an ever-more-creative QE3 permeates the blogosphere. Alas, we should reflect on the recent Federal economic efforts.
Long-time Fed watcher Lacy Hunt of Hoisington Investment Management recently pointed out the unintended consequences of Fed policies. Hunt shows how Fed policy has actually managed to negate its professed aims.
Instead of giving the nation a sought-after boost, QE2 caused the current slowdown. So Hunt writes in his recent Quarterly Review and Outlook. Real disposable income was lower in August than last December. Why? In part, because of the jump in commodity costs.
While rising equity values helped a few consumers, inflation in necessities, such as food and fuel, decimated real incomes for the average family. Thus, the emergent cyclical weakness that lies ahead can be directly related to the unintended consequences of quantitative easing, Hunt says.
Translation? All that extra cash, meant to jump start the economy, actually helped to elevate the cost of groceries, gas, and the cost of living. This erased the disposable income available to the average consumer. So leaving us in no better shape than we were before.
But, at least our Federal employees are prospering. Though I doubt that is what the Constitutional Congress had in mind.
Back to the Occupy Wall Street movement. The message is simple. Bankers, fat cats and executives cannot to gobble up ever larger slices of the national pie when so many are left no pie at all.
Think of all of the executives who walked away with millions while shareholders and creditors were decimated amidst the meltdown of 2008. Individuals like former Merrill Lynch CEO Stanley ONeal, who presided over a huge risk run up, the destruction of shareholder value, the collapse of the firm, and handed the bride over in a shot gun marriage to Bank of America. For that catastrophic tomfoolery he was awarded $161.5 million.
You do not have to sleep in a tent to rail against that type of corruption and abuse of power. Yet, that is not the point. Capitalism is an economic system of allocating capital. The most effective the world has ever seen.
Yet, Joseph Schumpeter predicted that capitalism would breed its own worst enemies.   He spoke of government and corporations helping capitalism evolve into corporatism. That democratic majorities would restrict entrepreneurship. That capitalism would increase the availability of education while reducing the availability of useful work. The result? An entire class of coddled, over-educated critics.
The OWS protestors insist on a larger piece of the pie without recommending how the bakery be enlarged to accommodate their wishes. These protestors consume, sleep in, and communicate with the very products created by the very corporations they detest. Who scream to be heard by those in D.C., those who have benefited these last few years.
And so D.C. slaps ever increasing regulatory burdens on Wall Street. On corporations nationwide. The very corporations who create jobs, products, services, and a better standard of living.
Unaware citizens applaud, shout their approval, never realizing that the fix is in.
Government moves, shifts and re-aligns. Lacking creativity, it creates nothing. Its executives are never the most efficient. Never the most effective. The U.S. Postal Service is billions of dollars in the hole. Our public schools are a mess. Yet, the government incessantly seeks more control.
The inverse of corporate ownership is state ownership. Historically, state ownership has led to outcomes much worse than income disparity.    In a recent column, Bill Frezza summed it up as such:
State ownership of the means of production has been tried as an alternative method of industrial capitalization. The misery that ensued makes the death toll from flu pandemics look mild.
The judgment of history is in. Never before have so many owed so much to such a misunderstood form of economic organization. And never before has such a beneficial innovation been subject to such constant criticism. Most people take the modern cornucopia of goods and services produced by corporations for granted. But if you were to go 48 hours without them you would look, smell, and feel like the people camping out for days in Zuccotti Park.
Corporations create. Employ. Support. Provide. They enable. They change the world--usually for the better. Perfect entities? Hardly. They must still be run by flawed human beings.
End the symbiotic relationship between corporations and government. Disavow corporations from contributing to political candidates. End the reliance of politicians on corporate beneficence. Destroy the revolving door between Wall Street and K Street. There in lives liberty.

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