Response to Billionaire Nick Hanauer: If the pitchforks are coming, they shouldn’t be for you

In response to Mr. Hanauer’s recent piece on wealth inequality, “The Pitchforks Are Coming…For Us Plutocrats,” I have to admit I did enjoy his historical references and his acknowledgment that a rapidly widening wealth gap can be a dangerous strain on the fabric of our society.  However, I had to point out a few glaring errors in his assessment.

First, he highlights the growing inequality gap, but doesn’t really delve deeply into why it’s getting worse and jumps right into the vaunted “we must do something” liberal siren song.  Did it ever occur to Mr. Hanauer that much of the rapid growth in the Gini coefficient has actually occurred under the current President?  Could it be that liberal policies and over-regulation contrived in the name of “helping” the middle class inadvertently create barriers to folks that can’t afford to have a tax attorney or compliance department on staff, and thus hinder their ability to succeed?  Too often, “doing something to help” is less about those that need it and more about the ego of those providing it.  The pitchforks should be for our self-serving politicians who, by either ignorance or willful malignance, have, through piles of misguided legislation, created a crony capitalist system that stacks the odds in favor of entrenched interests at the expense of small businesses.

This self-hating capitalist then proceeds to flagellate himself and his fellow successful people, as if becoming uber rich is some sort of sin.  I guess he’s just “checking his privilege.”  He cites Henry Ford, which is a great point.  However, he neglects to mention that Ford chose to pay his workers higher wages of his own volition; he was not compelled to do so by the government.  I have since sent Mr. Hanauer a copy of Milton Friedman’s Free to Choose, he should read it.

Mr. Hanauer then cites his idea of “middle-out” economics as an alternative to “the old misconception that an economy is a perfectly efficient mechanistic system.” Isn’t this the central tenet of Keynes, that a country’s economy is a well-oiled machine that can be actively “tweaked” for optimal performance?  It isn’t.  To quote George Will in one of his recent articles, our country “is the spontaneous order of 316 million people making billions of daily decisions, cooperatively contracting together, moving the country in gloriously unplanned directions.”  I also agree with Hanauer that a thriving middle class is the source of American prosperity, but he then subverts his own argument by suggesting government is the proper entity to engineer such prosperity.

Then comes the plunge right off the deep end as Mr. Hanauer starts touting the beneficence of the $15 minimum wage in Seattle.  Where do I begin?  The minimum wage is nothing more than a government imposed subsidy on the purchasing power of workers, and if you spend any time thinking deeply about economics, you’d know that when you subsidize anything, you invariably raise the price of it.  What that means is that since minimum wage workers now have more money to spend, the market will adjust to squeeze more of it out of them, and you’ll see rising prices, i.e., inflation.  It may seem like $15 minimum wage isn’t a risky policy, but that’s only as long as folks think its “cool” to plunk down $8 for a cup of coffee.

Further, if the McDonald’s fry cook produces only $5 of value per hour, but you are required to pay him triple that, the fruit of his labor must now increase in price accordingly for the employer to continue to make a profit.   Is that employer going to keep that employee, or maybe find a cheaper way to get the burgers off the griddle?  What would you do?  The question that Mr. Hanauer and all liberals always fail to answer is if these policies are such a good idea, then why do they have to be mandatory?  Bottom line, the miracle that has been the tech boom on the west coast didn’t really occur because of government intervention, it happened in spite of it.  So his assertion that his city “kick’s every other city’s ass” is only temporary, especially now that it’s applying a fix to something that he just denoted by virtue of inherent awesomeness wasn’t broken to begin with.

Mr. Hanauer vilifies Wal-Mart and McDonald’s, but neglects to mention the millions of jobs provided and the millions of folks lifted out of poverty by these businesses.  He asserts that people will absolutely not do the “right” thing, but that’s subjective.  What’s “right” or “fair” differs from person to person.  He actually makes a great proposal that I would take him up on, though.  If Wal-Mart paid its 1 million lowest-paid employees an extra $10,000 a year in exchange for the government cancelling all food stamps, Medicaid and rent assistance, I’m pretty sure every taxpayer would take that deal in a heartbeat.  Most would even throw $10 to Wal-Mart to help cover the cost.  Long term, that’s a win for the American balance sheets.

The biggest fallacy of Mr. Hanauer’s argument, though, reveals his amateurish understanding of economics.  He states that he socks his money away in savings, where it doesn’t do the country much good.  However, that is his choice, he shouldn’t be penalized for it (like most savers that see their savings sneakily devalued through low interest rates and inflation), and HELLO!!—SAVINGS ARE MERELY DEFERRED SPENDING!!

Mr. Hanauer does redeem himself slightly when he mentions that we need to reduce demand for government and that the solutions to most problems lie at the state and municipal levels.  But he loses his way once again when he suggests that capitalism should be well managed because left unchecked, it tends toward wealth concentration and societal collapse.  That’s crony capitalism, not truly free market capitalism.

He closes by questioning trickle-down, fact-based economics with some self-deprecation, asking rhetorically if he is such a superior person to belong at the center of the moral and economic universe.  The answer is no, of course, but he is proposing just such dominion of one person over another when he is asking that someone compel me, through government action, to pay more than I think I should for the labor of my employees.  I don’t know about you, but it seems this son of a pillow salesman is continuing his family’s profession—by peddling fluff.

Avoid stepping in a big pile of Shi’ite

Over the past weeks, the Sunni militant group Islamic State of Iraq and Syria (ISIS) has staged a lightning offensive across northern Iraq that has caught the White House and the Shi’ite Maliki regime in Baghdad flat-footed.  ISIS’ aim is to establish an Islamic Caliphate that stretches across both Syria and Iraq.  Militants are within striking distance of the capital, have captured US-provided equipment which they are now shipping to Syria to reinforce allies there, and Iraqi government forces have melted away in the face of the advance.  Calls to provide further military aid to the Iraqi Armed forces seem misplaced, unless we can ship them some much needed backbones.

In Syria, as the civil war rages on, calls for the US and Europeans to begin providing lethal assistance to the rebels there in order to topple Assad have grown louder, but advances by associated entities in Iraq complicate efforts.  We find ourselves in an uncomfortable and ironic predicament, needing the assistance of Iran to support the government in Baghdad and strike ISIS while helping rebels on the same side as ISIS in Syria.  In the dictionary under “morass,” it says, “see this.”

Perhaps the biggest challenge in determining what the US should do at this point has been a lack of a strategy that can achieve a realistic end-state beneficial to US national interests.  Sure, we’ve heard the fluff (respect the legitimate aspirations of the Syrian people and provide for a stable, secure, and prosperous Iraq, yada yada yada), but there’s no meat in that shawarma.

Here are some thoughts on what should be done.  By no means perfect, but more than I’ve seen proposed thus far.

Announce a hefty bounty on Assad and the members of his inner circle 

By offering a reward and/or asylum to those providing information leading to top regime officials being brought to justice, essentially “flipping” middle management, we could get Assad and his cronies looking over their shoulders and turning on each other, potentially forcing errors that would hasten their exit, capture or demise.  Make this about them, not the bureaucratic structure or people of Syria.  This could help ameliorate fears that all of Syria’s military and government is in our crosshairs and avoid the chaos that ensued after the “de-Baathification” of post-invasion Iraq, where we cut down too far into the existing government structure, disenfranchised  mid-level technocrats and military officers, and sowed the seeds of the insurgency.

However, Russia must be on board.  By agreeing to leave the Syrian government apparatus intact, perhaps Russia could be convinced to cooperate (or at least not interfere) with this plan.  Russia’s loyalty to Assad is largely based on national interest; if that interest could continue be served without him, logic dictates that they have no reason to continue to support him personally.  We may have to accept that we lose this round of geopolitical chess (Iran and Russia keep their proxy, Shi’ites remain in Saudi’s backfield) and focus on simply ending the bloodshed and reducing the strain on our allies neighboring Syria.  Having Russia and Iran lose a client state is a “nice to have” from a US national security perspective, but our window to actively bring that about may be closed.

There is no guarantee this would work, as the “middle management” is quite tied to the survival of the regime.  But it is a low-cost, low risk course of action that could have a high payoff.  It is certainly better than dropping some ordnance in the sandbox, crossing your fingers, and hoping that star-spangled awesome emerges.

Arm and aid the Kurds

Rather than waste time and resources trying to determine which of the fractious rebel factions currently fighting Assad are “jihadi lite,” why not anticipate the likely next struggle in Syria should Assad survive while we have the time to do so and Assad is busy with the imminent threat?  I’m not a fan of rebels who grow their beards long to grab aid from the Saudis and Qataris, then shave them to appear moderate and snag gear from the West.  I’m from New Jersey, I know when I’m being played.  This perverse situation where the US is aiding Sunni rebels in Syria against Assad, but is ready to strike associated rebels currently threatening Maliki in Iraq will likely result in every party in the conflict finding common bonds in their hatred of the US.

Further, this conjoined conflict is creating an opening for a regional shift, i.e., the emergence of an independent Kurdistan encompassing territory of present day Turkey, Syria, Iraq, and possibly Iran.  With the government in Baghdad unable to assert its authority in the Kurdish north of that country (and now on the defensive given ISIS advance), with Assad unable to assert his authority in the northeast of Syria, and with Turkish Kurds leaving SE Turkey for Northern Iraq under a peace deal with the Turkish government last year, the conditions are ripe for Kurds to start exercising their right of self-determination.

The Kurds, currently solidifying their position in northern Iraq and hedging their bets in the conflict there, will have more leverage in negotiating with the Maliki government, should it survive.  Should it not, the Kurds need to be sufficiently capable to defend themselves (and US national interests) from ISIS.

They have largely been spared regional violence, have ample resource reserves, gradually improving ties with Turkey, and good cooperation with the US during the Iraq invasion and reconstruction.  Bottom line, if an independent Kurdistan did eventually emerge, which is looking increasingly likely, we could work with them and they could potentially be a valuable ally in the new Middle East.

Create buffer zone in southeastern Syria

Refugees fleeing the conflict in Syria are putting severe economic strain on its neighbors and if the status quo continues unabated, conflict could spread to Jordan and Lebanon.  Creating a safe zone within Syrian territory will help relieve the strain.  The zone should be far enough away from the bulk of the fighting and the care, feeding, and protection of the refugees should be undertaken by the Saudis, as they are the primary sponsors of the rebels and primary drivers behind the push to oust Assad.  If they wish to continue to support their current course of action, perhaps they should bear the costs of the second and third-order effects of what they are doing.  After all, the justification for the numerous arms sales to our regional partners includes the US desire for allies to share more of the burden of maintaining regional stability and security; now is their opportunity.

Shape the narrative

For any of this to work, the West must be able to frame the international discussion in terms of putting the fate of a future Syria in the hands of its own people, supporting the only group in Syria that isn’t an outright adversary, preserving what pockets of stability there are in Syria and Iraq, and lessening the burden on our neighboring allies.  Not very confident that this current crop in the West Wing is up to it, are you?

At the end of the day, one of two outcomes are evident in Syria; either Assad remains and simmering violence continues over the long term, or Assad leaves and Syria slowly begins to rebuild itself.   If Assad remains, it is unlikely that a peaceful solution to the conflict will be found anytime soon.  Assad and his inner circle remain the focus of rebel rage.  As long as he’s in charge, they will have common cause to continue fighting.

Since there are no “good guys” in this scenario, strategic thinking stands to reason that if both sides bleed slowly, they are less of a threat to Israel, and more distantly, us.  However, the continued regional instability resulting from this slow bleed is unsustainable and is directly responsible for ISIS gains in Iraq.

Conversely, an Assad departure should be able to convince some of the more moderate rebels to come to the negotiating table and work toward a political solution that ends the war.  In a Syria working toward peace, those that continue to fight would be more identifiable as extremists/terrorists and therefore prime candidates for an “attitude adjustment.”

In Iraq, it seems “Diamond” Joe Biden was right (I can’t believe I just typed that).  In 2009, he openly questioned the political boundaries of Iraq and whether they were tenable over the long term.  Understanding history, we see that these borders were deliberately created by the British and French Empires after WWI so as to keep the inhabitants of the region focused on local squabbles and thus, less prepared to deal with foreign exploitation.

We must also be cognizant of what can realistically be accomplished via US action.  We are attempting to insert ourselves into a religion-based conflict that has raged for over a thousand years.  It is asinine to think that “democracy in a box” can change hundreds of years of animosity and tribal conflict in 10 years.  Sometimes, folks just have to duke it out.

I do not have all the answers, but believe framing the question properly is essential to understanding the situation.  Should the US intervene again in the region (and accept all the second and third-order effects of intervention) to preserve this century-old vestige of British imperialism?  Or should it accept that the imposition of the traditional Westphalian state structure (google it) on this tribal-based society has been a failure, wait to see whether the region reverts back to its pre-WWI status, ensure our regional allies that have more or less accepted the Westphalian model are assisted and supported in the interim, and strategically shift our alliances to new regional actors?  Perhaps it is helpful to quote Mustafa Kemal Ataturk, father of modern Turkey, who, in the wake of WWI, built his country into a modern, successful state.  He famously opined, “Look westward, and leave the lands of the former Ottoman empire to their backwardness and blood feuds.”

Why Russia is eating our lunch in Ukraine

Over the past few weeks, we’ve seen what looks to be a dangerous re-ignition of the Cold War.  In one corner, we have the crafty and shirtless Russian Premier (I mean President) Putin who, in response to the overthrow of his minion in Kiev, seized the Crimean Peninsula from Ukraine with blinding speed and without firing a shot.  In the other corner, we have a feckless and dithering EU and an American President that seems to have been caught on his heels and is utterly out of his depth when it comes to strategy.

Rather than jump on the armchair general bandwagon and shout from the sidelines what should be done here, I wanted to point out why I think it is happening.  Not from a geopolitical perspective, mind you, but from a philosophical one.  Think back to the original cold war, the battle of ideologies between capitalism and communism.  Why did the Communists lose?  It helps to think of it as a game of poker.  The Soviets had very good players; some would argue better than ours, given that they were able to stay in the game as long as they did.  But communism, with its emphasis on control, coercion, and the primacy of the collective, was invariably a terrible hand.  After all, if it was such a good idea, then why did it have to be forced on people?  Conversely, capitalism represents free enterprise, liberty, and the primacy of the individual.  We had the better hand, i.e., the superior ideology and, more importantly, the moral authority that came with it.  We had a full house, and, while the Russians had a great poker face, all they could ever muster was a busted flush.

Fast forward to today.  One of the reasons we’re losing the battle of international public opinion with the Russians is because we have weakened our own hand by lurching away from our Constitutional principles espousing limited government, a laissez-faire economy, and rejection of foreign adventurism.  We’ve tarnished our credibility and are now subject to catcalls of “hypocrisy!” by our adversaries.  It’s not a coincidence that the doctrine of Responsibility to Protect (R2P) that this administration used as justification for intervention in Libya and wanted to use in Syria is the same doctrine that Putin used in Georgia in 2008 and is using in Ukraine now.  By embracing a doctrine that could be twisted and lawyered so much as to justify intervention pretty much anywhere at any time for any reason, we condone that behavior by other nations.

Observe the massive increase in the size of government and dependence on welfare programs over the past 5 years here in America.  More Americans are receiving some sort of government assistance now than ever before.  Further, as laws and regulations pile higher with each passing Congress (they need to “do something,” remember?), actual innovation and productivity give way to what anthropologist David Graeber calls “bullshit jobs,” which are reminiscent of the make-work jobs of the Soviet era.  Inventors and scientists and innovators are supplanted by bureaucrats, actuaries, and middle management.  Such an environment breeds lethargy and deadens the spirit.  This is an unprecedented move toward the very ideology of collectivism and centralized government control that we thought we vanquished 25 years ago.

Bottom line, the more we drift leftward toward a statist Euro-socialist model, the more we degrade our economic might, the idea of American exceptionalism, and the moral authority that comes with being the torch-bearer for the free world.  Once that is gone, we become “just another country.”  And that torch?  It sits atop the Statue of Liberty.  It’s time we remember why it was sent to us.

Obamacare and the fallacy of socialized medicine

Following the rollout of Obamacare over the past few months, many Republicans have watched with much schadenfreude this spectacle of horrendous government ineptitude unfold.  But before they get carried away doing their “I told you so” dance, there are a couple of points to acknowledge and address.

First, Democrats defend themselves by reflexively pointing out that the American healthcare system before the Affordable Care Act (ACA) had some serious problems, which is what prompted them to action.  Fair enough.  Then, replete with snark and smarm, they ask where the GOP alternative is.  That is the trap.  Understanding the desire exists to come up with an alternative plan or amend the existing ACA so as make it palatable, we have to question if any band-aid can be successfully applied.  As anyone knows, if you misdiagnose a problem, the treatment regimen will be ineffectual at best, harmful at worst.

Addressing the first assertion, most agree that the healthcare system had many problems before Obamacare, but can’t really articulate why.  Not everyone could get coverage and prices of goods and services were too high……….but why?  I believe the answer lies in economics.  When you subsidize anything, you invariably raise the price of it because you are artificially lowering the cost to the consumer and thus increasing demand.  That, in turn, contributes to a feedback loop that distorts the price of everything that sets its price based on the value of the initial good.

This applies to healthcare.  Government programs like Medicaid and Medicare sowed the initial seeds of failure within the healthcare system by artificially setting prices (in the form of reimbursement costs) of everything from pills to MRIs to hemorrhoid donuts by government fiat instead of letting markets determine the price.  Once those initial goods and services had their true prices distorted by government intervention, the prices of everything else related to them followed suit.

Since the price the government sets differs from the actual cost to the providers in the private market, those providers relying on government reimbursement had to raise their prices in order to make money and continue to operate.  But now, everything else that had been basing its cost relative to those items/services had to rise as well, hence the upward cost spiral that has people paying $30 for an aspirin at the hospital and hundreds of thousands of dollars for major surgery.

This leads us to the misdiagnosis by the Democrats.  Their solution (socialized medicine) injects MORE government into the market, which is the EXACT OPPOSITE of what should be done.  This reminds me of a poignant quote by German economist Roland Baader, who observed that “the political caste must prove its right to exist, by doing something.  However, because everything it does, it does much worse, it has to constantly carry out reforms, i.e., it has to do something, because it did something already.  It would not have to do something, had it not already done something. If only one knew what one could do to stop it from doing things.”

The correct prognosis, of course, is to let the free-market do what the free-market does—supply will meet demand and the resulting equilibrium will set the price of the good or service, all without government intervention.  Impossible?  Then answer how Devi Shetty, the “Henry Ford of heart surgery,” is able to provide cardiac surgeries at a tenth of the cost it would be in the US at his hospital in India.  It is partly because he leverages economies of scale, but mostly because of the simple fact that if he charged $20K-$100K to poor rural Indians, he would have exactly ZERO customers.  What happens then?  The doctor cannot make a living and leaves and the community is left with many people with untreated cardiac afflictions.  Nobody wins.  Which brings us back to the simplest maxim of economics; something is worth what someone is willing to pay for it.  That’s it.

Further, the second and third order effects of this help are almost always negative and exacerbate the initial problem.  By “socializing” healthcare, we’re actually harming society as a whole.  Why take care of yourself when you can foist the costs of your irresponsible behavior onto everyone else?  When you don’t have to directly pay for the consequences of your poor choices, you make more of them.

Now, there is a legitimate debate that can be had about any government involvement within the healthcare system, and I stand ready to have it.  For example, to protect against pandemic airborne diseases that could negatively affect American society as a whole and are not resultant from poor individual choices, it can be argued that government entities such as the Centers for Disease Control (CDC) fall under the general welfare clause of the Constitution and should receive federal monies.  After all, airborne pathogens do not recognize state boundaries or socio-economic status.  But that is a far cry from a government agency that dictates what treatments I can have or what a particular service should cost.  Unfortunately, no one seems to have thought that far ahead, certainly not those who conjured up this Obamacare monstrosity in the first place.