California vs. the Productive Class

California is sinking fast economically, as we explained in States in Budget Crisis.

The Los Angeles Times points out that California placed 48^th in a study of business-friendly states, trailed only by New York and New Jersey -- and that was the good news. A few weeks later, the Times reported even more dismal information.

Leading with the news that Chief Executive magazine had named California the worst place to do business for the eighth year in a row, they went on to detail some of the reasons.

Its 10.9% unemployment rate is only lower than Nevada's and Rhode Island’s. A third of U.S. welfare recipients live in California, the report noted. High state taxes and bundles of red tape make operating a business in the state unaffordable to many companies, critics say.

Last year, 254 California companies moved some or all of their work and jobs elsewhere -- 26% more than 2010. Most chief executives in Silicon Valley said they won't expand in the state, according to the survey.

In The California "Austerity" Trap, Robert Upshaw points out that California's expected budget shortfall has mushroomed to $16 billion and in response, Governor Jerry Brown offered a plan that ups the top tax bracket rate by 3% for the next seven years and increase sales taxes by one-fourth of 1 percent for four years.

In response to these woes, California's solution is to attack its underground economy, estimated by the state at between $60 and $140 billion, rather than lowering the tax and regulatory burdens that have driven that substantial portion of the economy underground, as Reason reports.

History Through a Different Lens

Author's Note: The theory advanced here is painted in extremely broad strokes, since I wanted to tell the story in one easily-digestible blog post. I'll expand on particular issues in future blog posts.

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As part of the exploration of the transition that society is facing, it would be well worth our while to understand how we got into this sorry mess in the first place.

I often wondered how a society founded on innovation, self-reliance, and respect for the individual and individual choice above all else morphed into the society we see around us today. I found one plausible explanation in the pages of The Homebrew Industrial Revolution: A Low-Overhead Manifesto, by Kevin Carson.

When I first started reading The Homebrew Industrial Revolution (THIR), I was expecting a technical treatise. However, before the author got to that, he embarked on a tour of the evolution of society during the Industrial Revolution that is, to put it mildly, considerably at odds with the one we all learned in public school.

Connecting the Dots: Obama's Value

What Makes Obama Worth a Billion Bucks?
First Dot: President Obama just became the first politician to ever collect over a billion dollars in career political contributions.

His total take reached $1,017,892,305 in April, some nine years after he began his 2004 race for the Senate. Obama is widely expected to raise at least $300 million more before November.

Second Dot: The Washington Post reports White House visitor logs provide window into lobbying activity.

Is Directive 10-289 in Our Future?

I'm currently rereading Ayn Rand's Atlas Shrugged, thanks to an ongoing discussion of the book with a first-time reader-friend from the previously mentioned Absolute Write Politics & Current Events forum.

For those not familiar with the novel, it tells the story of an America choking on special favors and regulation, where each attempt to "fix" things leads only to more problems, where legislation promoted for the "common good" instead serves to line the pockets of the politically-connected, where regulations claimed to promote stability instead institutionalize stagnation. An America where "too big to fail" applies not only to banks, but to the steel mills, copper mines, and railroads of those who curry favor with the administration.

An America, in short, not too far distant from the one we inhabit today.

Austrians Ascendent

The curious task of economics is to demonstrate to men
how little they really know
about what they imagine they can design.
F.A. Hayek, The Fatal Conceit, 1988

The Austrian School of economics, for many years considered "fringe," or heterodox, has nonetheless proven startlingly prescient, as the quotes from two famous Austrians in the photograph above illustrates. Now, in the midst of the Great Recession, some attention is being paid once again to the school of economic thought that led Mises and Hayek to express their contrarian positions before the 1929 stock market crash.

The Austrian School of Economics

Briefly stated, the Austrian School argues that economics is a social science, rather than a physical one, that human behavior in the aggregate is so complex as to make economic modeling all but impossible, and that the proper approach to understanding economics is through the deductive discovery of fundamental laws of human action rather than through analysis of historical data.

Mainstream economists operate primarily from the latter, inductive, form of reasoning, while the Austrian School is built on a foundation of deductive reasoning from first principles, also known as axioms.

Licensed to Live: Occupations

Author's Note: Just below the masthead at the top of the page you'll see a new Contents link. The linked page lists all Tireless Agorist columns, arranged loosely as a table of contents or reading list by category. I hope you find it useful for exploring The Tireless Agorist.

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In 1787 one could get most any job or open most any business without seeking the government's permission to do so. Today, nearly one in three U.S. workers needs a license to pursue their chosen occupation, and starting a new (legal) business without the involvement of both a state-licensed attorney and a state-licensed accountant is a fool's errand. Two recent studies do much to explain the rapid growth of the underground, apolitical economy that we explored in The Apolitical Economic Superpower and the rest of the Phoenix Society series of columns.

Occupational Hazards

The Institute for Justice recently released Occupational Licensing in 50 States and D.C., a study examining the impact of licensing on 102 low and moderate-income occupations. In 1950, only one in 20 U.S. workers needed a license to pursue their chosen occupation. Today, the ratio approaches one in three.

States in Budget Crisis

Map courtesy of The Washington Post.
As the above map shows, more than 40 states are facing a budget shortfall in fiscal 2012. Ten states will fall short of revenue needs by 20% or more; Illinois and Nevada are both projecting shortfalls representing approximately 45% of their budgets. The top five are rounded out by New Jersey, at 37%, Texas at 31%, and California at 28%. Those five states combined project a total shortfall of just under $40 billion.

It appears that even the dismal case projected for California was an understatement. Tax revenue for the fiscal year is currently running $3 billion below projection.

It's also important to note that those figures are only for fiscal 2012. Factor in pension liabilities, estimated at more than 10 times annual budget in California's case, for instance, and the situation is untenable.

Millennial's Libertarian Leanings

As we saw in The Transformational Generation, the generations that grew up on the Internet have a different view of the future than that represented by the left-right, progressive-conservative, Democrat-Republican paradigm. We saw that play out when The Largest Libertarian Society in History took on the crony capitalism machine and sent SOPA and PIPA to the graveyard.

Most recently, we observed that The Underground is Surfacing, with people of all ages taking their destiny into their own hands, refusing to wait for solutions from an increasingly bloated and incapable political machine. And now, courtesy of the Harvard University Institute of Politics, we have data on the 18-to-29 year old generation that backs up these observations.

Although Harvard's report leads with the possible impact of their findings on the 2012 election, the real story goes far beyond November, and it's mostly bad news for the two-party system and the political machine in general. Forbes took their own look at the data and arrived at somewhat similar conclusions, although they too generally focused on the short term and the upcoming election.

These attitudes betraying both the traditional left and right fall generally within the bounds of libertarianism. Live and let live. Individual responsibility is as important as collective responsibility. Avoid military interventions. Distrust both government and corporations. Protect civil liberties.

The Underground is Surfacing

So far in this series about the Phoenix Society, we've addressed the massive size and rapid growth of the underground, apolitical economy, the rising decentralization and individual empowerment in response to the ongoing failures of centralized, top-down control, detailed specifics of new technologies that hold the promise of decentralizing production, new tools for and attitudes toward collaboration, and the decentralization of production. But the story of the Phoenix Society is not only in the depth of the changes occuring at the edge of the future, but the breadth of support for these changes, even among those who have yet to realize their depth.

Stories that explore the widespread acceptance of this new decentralized paradigm are everywhere, and a number of those stories have been told here at The Tireless Agorist. In Detroit: America's Greece, we saw examples of residents reclaiming homes taken by banks and government agencies, community gardening projects, voluntary cleanup efforts, neighborhood watches, and new sorts of microbusinesses, all the result of individual initiatives, not government programs.

Accidental Agorists Rebuild A Road tells the story of a community of volunteers repairing a road vital to their well-being because the government couldn't or wouldn't get the job done and they weren't willing to set around and watch their livelihoods destroyed. Meanwhile, Tombstone, Arizona Clings to Life as the citizens still wait after more than a year for permission from the government to repair vital water systems that are in an area protected by the Wilderness Act.

Our Crumbling Infrastructure

We Americans today have been a lot like a generation who's inherited our grandparents' mansion. People drive by going "nice house," but when you go inside it, it's falling apart.
Stephen Flynn
An economy runs on infrastructure, and America is no different. Energy and fresh water must be available wherever it's needed, and waste of all kinds must be removed to maintain a healthy environment. Roads, bridges, waterways, aviation and transit systems keep people and products moving. Dams and levees are critical to taming mother nature's propensity to provide too much water in one instance, too little in another.

And America's infrastructure is falling apart, as Pew Research reported back in 2008.

The numbers are staggering. More than one in four of America's nearly 600,000 bridges need significant repairs or are burdened with more traffic than they were designed to carry, according to the U.S. Department of Transportation.

Detroit: America's Greece

As most everyone knows by now, Greece is broke. The government has borrowed all there is to borrow. They've made all the promises they can possibly make. And they're going to be able to deliver on neither obligation. Bondholders and citizens alike have discovered that the well of unending plenty is dry. But this didn't happen overnight, and even now there is much denial of the final outcome, although the signs have been on the horizon for years. The euro-based Greek economy is dead; what the establishment will do to recreate a replacement "official" economy is yet to be seen. Nor is Greece the only euro-state in trouble. Portugal, Ireland, Italy and Spain are in similar shape, with many others not far behind.

Meanwhile, the Greek people are seeking their own ways around the mess that their national leaders have created, to some degree with the cooperation of those leaders, as we discovered in Greece Surrenders to the Underground Economy.

Detroit, like Greece, has failed. The government of Detroit is collapsing, soon to be replaced, one way or another. Battles have erupted between the Detroit City Council and Michigan Governor Rick Snyder to determine which group will take temporary control of the city (and eventually the ultimate blame for the collapse of Detroit's political machine).

Elizabeth Warren, Clueless or Complicit?

On March 8, 2007 the University of California Berkeley Jefferson Lecture Series presented The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net.

Since the title of the lecture closely paralled a topic I've been intending to explore, I decided that watching this lecture would serve to help me collect my own thoughts in preparation for writing on the subject.

The lecture was delivered by Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard University and past chair of the Congressional oversight panel created to oversee the 2008 U.S banking bailout. She conceived and led the establishment of the U.S Consumer Financial Protection Bureau, and is currently a US Senate candidate from Massachusetts. I've embedded the video, and I recommend watching it if you have the time.

What Ms. Warren Got Right

She opened her lecture by expressing her belief that "The single most important economic shift of the second half of the 20th century, in the United States, [was] that that millions of mothers poured into the full-time paid work force. A woman in 1970 who had a 16-year-old child was less likely to be in the work force than a woman in 2003 who had a six-month-old child at home. It was a profound shift in America."

"The median family in America went, over a 30-year period, from being a one-income household to a two-income household."

Malum in se, Malum Prohibitum

When it comes to the proper role of government, most people seem to agree on a few basic issues; murder, rape, fraud, theft and vandalism (acts of aggression against individuals and their property) are almost universally accepted as violations that government should prevent or punish. Conflicts tend to arise only after we step beyond that common theme.

Two legal terms illustrate that fundamental split: malum in se and malum prohibitum.

Not Worth a Continental

In The Perils of Paper Money, I introduced David Wolman's article A Short History of American Money, From Fur to Fiat, which appeared in The Atlantic in early February.

In that essay, I explained briefly how money, once disconnected from any objective standard of value, has historically devalued over time. This is starkly illustrated by the story of the Continental Currency issued during the American Revolution. This tale, relegated to two brief paragraphs in The Atlantic article, is central to our understanding of the concept of money. It provides an important cautionary tale concerning our existing Federal Reserve System and the peril of money grounded in nothing but the full faith and credit of any government.

Open-Source Freedom

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.
Robert A. Heinlein
Northwestern Localist asked an interesting question in response to the column Homebrew Production is Coming.

How many years are we from designing and building our own farm equipment, transportation, etc. etc.? This kind of technology makes massive centralized government control less viable.

I happened to know the answer is zero, which sent me searching for something I vaguely remembered, and that led me to the today's column. While Northwestern Localist won't be printing up a tractor on a RepRap machine any time soon, his question goes far beyond that, to the concept of shared knowledge.

The Higher Education Bubble

With almost a trillion dollars in loans outstanding and an estimated 27% of those loans more than 30 days in arrears, it's getting easier every day to predict the next segment of the economy to collapse.

Those who understand how the bubble-blowing combination of the Federal Reserve and government policy destroyed the housing market, fueled the dot-com bubble of the early 2000s, and shares some level of responsibility for every nationwide recession since 1913 watched in trepidation when "college for all" replaced "home ownership for all" as the entitlement mantra. It's starting to look suspiciously like they were right once again.

Fitch Ratings notes that the "The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion."

Greece Surrenders to the Underground Economy

The Guardian recently published Greece on the breadline: cashless society takes off, an all-too-brief look at what's happening in the streets of Greece in response to their government's international monetary woes. This paragraph is what triggered my reaction and the title of this post.

The Greek parliament recently passed a law encouraging "alternative forms of entrepreneurship and local development", including exchange networks such as Volos's, giving them official non-profit status for tax purposes.

As I read it, Greece has surrendered to the underground economy by writing off a significant chunk of future tax revenue, and it has to do primarily with "exchange networks such as Volo's." To understand, we have to go back to the top of the Guardian's story.

The Booze Cause of the Economic Crisis

Everybody should believe in something; I believe I'll have another drink.
Author unknown
Appearing at Real Clear Politics today, Causes of the Crisis, wherein Robert Samuelson proclaims "Four years after the onset of the financial crisis -- in March 2008 Bear Stearns was rescued from failure -- we still lack a clear understanding of the underlying causes."

He makes note of the two competing theories; that Wall Street, unregulated, took too many risks, and that mortgage-lending standards created the housing bubble. He then examines the case for a root cause of both.

Actually, both theories are correct -- and neither is... But the fact that these theories are not mutually exclusive suggests that both were consequences of some larger cause. Just so. What ultimately explains the financial crisis and Great Recession is an old-fashioned boom and bust, of which the housing collapse was merely a part.

In this, Samuelson is correct. He then proceeds to give a history lesson, pointing out that the boom began with the decisive defeat of double-digit inflation in the early 1980s, (while failing to address the cause of, or cure for, that inflation, however). He points to two mild recessions in the ensuing years, and gives credit to the Federal Reserve for "defusing" those two threats. He then states "booms become busts because justifiable confidence becomes foolish optimism," and continues his history lesson by spreading the blame everywhere; on investment banks, households, lending standards, regulators, ethical standards, even criminals. But not one word of explanation as to how "justifiable confidence becomes foolish optimism."

Exploitation: A Matter of Perspective

Matt Yglesias asked what was perhaps a rhetorical question at Slate on Friday, in his column The Real Story Is Everywhere In China Where They're Not Making Apple Stuff.

He first notes that "Public radio's popular This American Life episode about abuses in the Foxconn factories that make Apple products has been retracted on the grounds of the "significant fabrications" it apparently contained."

Matt then suggests that perhaps Apple's real sin was in "exposing our delicate western sensibilities to the misery [of Chinese workers]."

As he points out, "You don't read articles about working conditions in factories making socks destined for export to Kazakhstan, and you don't read articles about working conditions on the rice farms that people eagerly leave to go toil in the sock factory."

And then it's time for the rhetorical sucker punch. I use that term as a compliment, not a pejorative; it's an important question to ask.

When you read something bad about a Foxconn factory and then see that thousands of people line up for the chance of a job at one of them, that really ought to make you wonder. What were those guys doing the day before they decided to stand in line? How did that look?

Well, Matt, thanks to the New York Times, this Tireless Agorist can answer that question for you, through the eyes of a young man born in China and now attending an American university. He sent the following note to David Pogue, who included it in his column What Cameras Inside Foxconn Found.

Shocker: Hybrid Cars Stalled

First Shocker: General Motors has announced it will idle production of its Chevrolet Volt plug-in hybrid for five weeks because of slow sales, in spite of efforts to boost the vehicle's consumer appeal. The shutdown begins March 19th and ends April 23. Approximately 1,300 workers at the Hamtramck, Michigan factory will be out of work for that period.

The Volt was launched with great fanfare last year, but has suffered a rocky start with sales far below projections. Its primary purpose has been to serve as a lightning rod for critics of the Obama administration's auto-industry bailout and concurrent emphasis on alternative energy. It's also a fine example of crony capitalism at its best.

The company currently has an inventory of more than 6,000 Volts on hand. At current sales volumes, that represents almost a six month's supply.

The world's No. 1 automaker sold just 7,671 Volts last year. Some 1,203 Volts were sold last month, about double the number for January, but well below December's total of 1,529.