Oh, no! Now Barack Obama is on the case!
First the pope. Now the president.
The Dow fell again yesterday… down another 68 points. Gold fell, too – down $15 an ounce.
Meanwhile, the president thinks income inequality will divert the public’s attention from Obamacare. USA Today has the story:
President Obama sought to revive the issue of growing income equality on Wednesday, saying it restricts economic mobility and threatens to shrink the middle class.
“I believe this is the defining challenge of our time,” Obama said in a speech at an event hosted by the Center for American Progress, a pro-Obama think tank. “It drives everything I do in this office.”
The growing gap between rich and poor can be closed by actions ranging from an increase in the minimum wage to better education to following through on his health-care plan, Obama said.
Obama also again proposed creation of government-assisted “Promise Zones” in urban and rural areas that are struggling.
Obama said the average CEO now makes 273 times the income of the average worker.
Where did he get that number? Out of his hat, we suppose… along with the rest of his ideas.
In our company, the CEO makes maybe about 10 times as much as the average employee. We’d be surprised if it were much different in other small businesses.
Let’s see, the average worker makes about $40,000. So 273 times that is $10,970,000. We’ve met some good CEOs, but never one who was worth $10 million a year. Not even close. Who would pay a CEO that kind of money? Only a public company with cronies on the compensation committee and shareholders who aren’t paying attention!
Freedom and Control
Is Obama right? Is there something wrong with one person making a lot more than another? Is redistributing wealth from the person who earned it to the person who didn’t the “defining challenge of our time?”
If so, can you control the outcome of a free market… and still have a free market?
But who cares? The trouble with free markets is they don’t necessarily deliver the results you want. As far as material success is concerned, nothing can beat the free enterprise system (the freer the better). No economist has ever put forward a serious proposal for making it more productive. No improvement has ever been forced upon it. No rival system has ever raced ahead of it.
But the improvers talk about “fairness,” “social consequences” and the “political environment” in which an economy operates. They say there’s a “trade-off” between the ideal of free markets… and a fair, democratic society.
That’s what seems to stick in President Obama’s craw: that the trade-off has gotten out of balance. Markets are too free, he believes; they deliver outcomes that voters don’t like.
“It’s either money or control,” says a friend of ours.
“You get money by giving up control… and letting markets work.
“But you, personally, don’t necessarily get what you want. And if you try to control an outcome, it’s gonna cost you.”
A Matter of Envy
Rich people want to control things because they want to protect what they have. Poor people want to control things because they want more of what other people have.
Nobody – save a few philosophers and wing-nut economists – is willing to let the chips fall where they may.
“It’s all a matter of envy,” continues our friend. “And greed. Everybody wants what he can’t get honestly. He turns to the government to get it.”
And then he changes his tune… Instead of talking about what he wants, he refers to what he says would be “best for the society”… or what would “help the economy.”
What we all want is an economy that delivers our own version of “fairness,” which almost always involves more for us and less for everybody else.
It’s an economy that is so finely controlled that what we do no longer determines what we get. We can step on all the rakes we want; never will the handle come up and hit us in the face.
Instead, everything is under control. We get outcomes that are the result neither of choice nor chance, but of crony connections and the master plan. In short, we all want to live in North Korea – until we actually see the place.
Regards,
Bill
P.S. Since we are in a philosophical mood, we would like to recommend colleague Alex Green’s new book, An Embarrassment of Riches. Alex says the human race “has never had it so good.” In 226 pages, he proves that the glass is half full… and that the other half doesn’t matter because there’s nothing in it. A good book written by a good man. (Here’s the Amazon link for you.)
Market Insight:
New Coin on the Block?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
As you know, we’re very interested in bitcoin at Bonner & Partners.
Not because we like to speculate. But because we believe digital money, as Bill puts it, is the “biggest innovation in currency in 6,000 years.”
But should you convert your dollars into bitcoins? What about the possibility of a newer, better digital currency taking bitcoin’s place?
Not likely, as early bitcoin adopter and “editor at large” at Free Market Cafe Joel Bowman explains:
There are 40 or 50 “copycoins” circling cyberspace. And the number of competitors continues to grow as the world awakens to the potentially evolutionary concept of a decentralized digital currency.
This competition is neither surprising nor ipso facto a bad thing. That the market welcomes competition is no secret. The profit signal invites it, after all. Plump margins beckon newcomers to the space like bare backsides call mosquitoes to a nudist camp.
Although there is little barrier to entry for new digital currencies (bitcoin is open source, meaning that anyone can see the “blueprint” of how it was developed), there is an enormous – and exponentially increasing – infrastructure advantage for the “first mover.”
During their infancy, distributed networks strain to achieve critical mass. Many fail to gain any real traction. But once that critical mass is reached, it becomes increasingly difficult to overthrow the lead dog. This is true in any market… but particularly so when it comes to network protocols. It’s impossible to say whether bitcoin has reached that point. But it may be getting close… if it’s not already there.
Six months ago, the bitcoin network “hash rate” – the measuring unit of the network’s processing power – surpassed 1 exaFLOPS. That’s more than eight times the combined speed of the world’s top 500 supercomputers. Today, it’s 64 exaFLOPS. In other words, the bitcoin network now clocks in at more than 256 times greater than the world’s 500 most powerful supercomputers combined.
That’s a lotta FLOPS! And there is not a currency network on Earth registering faster growth. That’s an important distinction, because the network is what secures and validates the currency’s transaction history. If one values security and payment validation in a digital currency, bitcoin is by far the safest bet.
Add to this the many thousands of businesses worldwide already accepting bitcoin – from Internet giants such as WordPress and Baidu Jiasule (a firewall service codeveloped by “China’s Google”) to the companies that sell real-world goods and services such as clothing, car accessories, dental work, college degrees, Subway sandwiches, champagne delivery… and virtually everything in between.
All this is not to say one of these upstarts – or some New Coin On The Block (N.C.O.T.B.) – won’t take over. Simply, that it is much harder to dislodge an established network than it may seem at first blush.
P.S. Joel wrote alongside Bill and Eric Fry at the Bill’s first e-letter project, the Daily Reckoning. Now, Joel and Eric have set up shop at Free Market Cafe. You can keep up with them here.
