Tuesday, November 29, 2005

Blindly Making Money

Critics of capitalism make a baseless (and spineless) accusation against businesses: profiteers are out to blindly make money.

Wrong.

If it costs a manufacturer $30 each to produce a particular radio model, and it is assumed that if 500 radios are produced, all will be sold, what must be the selling price per radio to ensure that the profit (revenue from sales minus total cost to produce) on the 500 radios is greater than $8,200?

With basic algebra, the answer comes out to > 46.40.

You know who else tries to figure out money-making in this fashion? How about every applicant to any job out there. Job seekers ask such questions as, how much does the job pay, what are the costs involved, or what do I give up should I take this job for such and such pay?

Unsurprisingly, employers and employees think the same way about how to make money.

Saturday, November 26, 2005

Senator Alo's Debt Forgiveness: A Precedent for the ASG Retirement Fund

Senator Alo wants the ASG to "forgive the hospital's $5 million loan that was approved by the Fono and signed into law in Fall of 2003."

What does this say for ASG employees?

Since the government will lend your retirement money for LBJ's bailout, Senators will forgive LBJ from ever paying back your hard-earned retirement money if the going gets rough in the future.

I hope the people will not let the government/politicians further their careers off their pensions and life-savings.

Friday, November 25, 2005

The Awful Truth about Sweden by Johan Wennstrom

Over the past few weeks, two articles—one in the Guardian and the other in Le Figaro—have given new ammunition to those who worship the Swedish social model. Both articles, as is so common among those that discuss Sweden’s welfare society, were characterized by grave inaccuracies.

The first piece, by Guardian columnist Polly Toynbee, described a Sweden where unemployment is low, growth is high, and where “public services are second to none.” Hence the unambiguous title for the piece, “The Most Successful Society the World has Ever Known.” Moreover, Toynbee’s column described a Swedish labor market built on a “magic” pact between the state, its employers, and its workforce.

And just last week, in the midst of the French riots, a team of journalists from Le Figaro paid a visit to Rinkeby, a predominantly immigrant area in Stockholm. The newspaper—generally considered right-wing in the Swedish press—entitled their resulting story, “Rinkeby, a Model for the Suburbs,” and held up the Swedish immigration model as an example of great success.

Sadly for these journalists—and for Sweden—their descriptions couldn’t be further from the truth. Yet their descriptions are quite typical: Few comprehend the full scope of the problems with the Swedish welfare state.

First, unemployment is not at all low. The official rate stands around 6 percent, which is just above normal for a market economy. But according to the trade unions, which are intimately connected to the Social Democratic government, the real—and hidden—level of unemployment rises above 20 percent. Out of a population of nine million people, over one and a half million healthy Swedes have chosen not to enter the labor market and live on welfare instead.

The Swedish labor market is rigid and regulated, and the real significance of the “magic” pact between the state, employers, and the workforce to which the Guardian refers is an order where the state takes away every right from the employer and gives those rights to his or her employees instead. Companies do not dare to hire new staff; because of labor legislation, it is impossible to get rid of them. There is no doubt that this is a major reason for Sweden’s mass unemployment.

And second, while Sweden’s growth (around 3 percent) is above the European average, it is still relatively low. If Sweden were a state in America today, it would be the fifth poorest. Even more, the total tax pressure is 63 percent. In that perspective, perhaps it is not surprising that not a single large-scale enterprise—like IKEA or Ericsson—has been created in Sweden since 1970.

Are these the trademarks of the world’s most successful society? I think not, and there is even more: Ten percent of Swedish students leave compulsory school without complete grades, and one third of the students in upper secondary school drop out. And the universal health care system—widely celebrated abroad for its “fairness”—is an equally dismal story. The wait between a first doctor’s appointment and an operation may be as long as a year or more, which in some cases is enough time for the patient to die, while others are forced to spend the better part of their “golden years” waiting for a new hip. At the same time, the government is trying to enforce a ban on private health care initiatives.

Sweden’s immigration model, which bears much resemblance to the French model, is unsuccessful for a host of reasons. Multiculturalism has been allowed to grow strong enough to challenge the welfare state, and this multiculturalism is in no way related to the natural symbiosis of lifestyles that come into existence when people live together. Rather, it is a reference to the political philosophy that holds every culture at equal standards, and, in the name of tolerance, ignores curtailments of our liberty. The Swedish welfare state is tearing apart because of its desperate effort to please every minority and special interest group, and to respect all cultural manifestations, even if they are harmful. This leads to a situation in which Islamic extremism is given a forum, and in turn, a silent approval by the authorities.

Instead of putting immigrants to work and assimilating them to Sweden’s democratic values, they are placed in economically destitute suburbs. It is in these suburbs that immigrants begin hating freedom and start dreaming up ways to set cities ablaze.

In the neighborhood praised by Le Figaro, Rinkeby, the unemployment rate is 60 percent. A similar Stockholm suburb is Tensta, where unemployment is in the high 50s. Tensta is currently the home of one of the Social Democratic Party’s most renowned immigrant personalities, yet she is set to move due to fear of the violence and Islamic extremism that has taken root in the community. And in a suburb of Malmo, a recent FOX News feature showed young immigrants throwing stones at an ambulance. Yet, for some reason, French journalists manage to claim that “the Swedish model of social integration does not appear to create much frustration.”

As chilling as the news may be to the European Left, the Swedish welfare society is no longer a success. It was certainly good when Sweden, during a hundred year period (1860-1960), experienced the world’s highest growth, but that sprung from entrepreneurship. And that entrepreneurship is gone. All we have left today is a Social Democratic prime minister who loudly criticizes everyone who speaks badly of Sweden. It’s quite sad.

Wednesday, November 23, 2005

Open up American Samoa to Healthcare Competition

Now that LBJ has raised rates in an attempt to match costs, the ASG should remove any obstacle to entry for any entrepreneur looking to provide health services for a profit.

The people should also be allowed to pool their money together, without any restrictions or mandatory services (as in insurance plans), to help spread costs amongst members of their group.

Competitors would be lured to an island where the people pay for the actual cost of healthcare. Especially since the LBJ can't undercut them with federal funds or local loans. Oops, I forgot... this semiautonomous government agency is still on the ASG dole.

Thursday, November 17, 2005

Why is Usury a Crime?

When we talk about the price we have to pay to borrow money (credit), we are talking about the interest rate. The price for credit is determined by supply and demand in the marketplace just like any other commodity. Therefore, when you set a cap on prices for a particular good, the likely effect is a shortage when demand outpaces supply.

To solve for the shortage of available credit caused by government-mandated limits, we have the Development Bank of American Samoa (DBAS). In other words, the government causes a shortage with usury laws, and then uses the DBAS to alleviate the very shortage it caused in the first place.

But the money it uses to undercut market interest rates has to come from somewhere (usually from the citizenry). If the money doesn’t come from taxes then it is either from newly printed money from the Federal Reserve’s fiat money supply [causing inflation] or from more debt financed by the very foreigners we constantly chase away (regretfully) and by investors of U.S. Treasury securities.

In effect, an interest rate limit doesn’t lower the price for credit, it just changes the way we pay for it. Moreover, since a limit discourages some from lending, it essentially raises the costs of supplying loans over the long run, which we would then have to pay through higher taxes, more dollars printed [inflation] or more debt.

Hopefully, one can see the dangerous downward spiral of destruction that we will fall into by trying to avert risk and responsibility in the marketplace.

Tuesday, November 08, 2005

Promises by Politicians: An Oxymoron

Governor Togiola continues to promise that the new ASG airplane will not compete with the private sector. He seems to forget that politicians regularly break or forget (or whatever excuse they come up with) their promises. The governor has the power to make the ASG airplane compete with the other two carriers at anytime of his choosing. On top of that, will the next governor to succeed Togiola adhere to such a committment?

Note to politicians: Can't ask for trust when you don't have the track record for it.

The ASG is using tax dollars from commercial air carriers to pay for and maintain an aircraft that stands to compete with them at a moment's notice and would be used to transport government officials who would otherwise have had to buy a ticket from them.

And if prices for tickets to Manu'a go up, guess what the people are going to ask our governor to do?

Government competition with the private sector is legally and morally wrong.

Wednesday, November 02, 2005

DBAS: An Economic Steriod

We should be wary of politicians using the Development Bank of American Samoa (DBAS) as an economic steriod to boost our economy. Like the drug, the spur in our economy's growth can be just a temporary fix. Living life on credit is good up to the day you have to pay your dues.

Recently, DBAS raised the loan ceiling for businesses from $150,000 to $300,000. The idea is that DBAS will loan to those ventures commercial banks will not lend to.

This is very typical of government to lend other people's money so easily. Since commercial (private) banks lend their own money, they're more careful about who they lend it to. Is Abe Malae lending his own money to applicants? Will it hurt him in his own pocketbook if they don't pay back?

The answer is no for both questions. Taxpayers will have to pick up the tab. That means you, me, mainland Americans, and future generations.

The only reason commercial banks won't take on such ventures as ecommerce or windmills on the mountains is because of the limit on interest rates. If Abe Malae wanted to lend his own money for such risky ideas, he would want to recoup as much money as possible as fast as possible as they are more likely to fail than more proven businesses. He can only charge as much as those entrepreneurs are willing to accept. He might negogiate for 50% interest rate at first, but the borrowers may not take it. Abe personally may not take anything below 30% for such risks borrowers want to pursue. Negotiations go back and forth between Abe and the borrowers until they reach something like 44%.

Both parties are happy lest neither would not accept the terms of the loan. But such a deal is illegal according to our good government.

Such negotiations not only weed out ideas not planned carefully enough, but keep borrowers accountable and encourage them to get their ideas off the ground and refinance on better terms ASAP.

But why waste time when we can have taxpayers foot the bill again and again and again?

Having taxpayers finance loans to businesses serves as an incentive for unaccountability by both the DBAS and borrowers.

Lending credit should remain the business of the private sector (commercial banks, stocks, bonds, and so on), where market incentives encourages accountability on the part of lenders and borrowers.