The Brothers Austrian

One beautiful summer day, a young boy asks his mother if he can set-up a lemonade stand.  His mother acquiesces and takes the boy to the grocery store where she spends $10 getting him fresh lemons, sugar, ice, and disposable cups.  Before the boy is allowed to go sell his lemonade, she places a variety of rules on him: don’t talk to strangers if she isn’t around; set-up your stand close to the house; and stop selling by 2 o’clock.  That boy, eager to get started, quickly agrees and runs outside to set-up his stand.

The boy sets up his stand and begins selling lemonade for $2 per cup.  He doesn’t have any real sense of profit and loss, just knows that $2 can get him a can of Red Bull at 7-11, so that seems like a good start.  His mom said that he had to pay some of the money she lent him back, but he knows better.

As the boy begins selling an older gentleman out for a run stops and asks for cup.  The boy hesitates and then says,

“Sorry, but I cannot talk to strangers.”

“Well, how do you intend to make a profit and set-up shop again tomorrow,” chuckles the older man as he runs away.

The boy quickly scribbles ‘closed’ on his sign and runs in to ask his mom to join him outside so he can sell to the next older gentleman.  On their way outside he asks his mom if he can set-up his stand tomorrow if he doesn’t make a profit today.  His mom replies,

“Don’t worry sweetie, I’ll give you some more money tomorrow so that you can open up again.”

Contended, the boy resumes selling his lemonade.  As he sits in his stand, he cannot help but notice how quiet his side of the street is compared to the other side.  Across the road was a small local gym that seemed to have tons of people bustling in and out.  The boy seemed to think that all of the people coming and going looked very thirsty.  Sensing opportunity, he yelled to his mom asking if he could set-up his stand across the street.

“Didn’t you listen to my rules?  You need to stay on this side of the street,” replied his mother.

The boy manages to sell two or three cups of lemonade, before his mother calls him in at two.  Noticing the amount of activity on the street picking up in the afternoon hours, he pleads to stay out until 5.  His mother tells him that he cannot.  The disgruntled boy packs up his stand and heads inside.  He places the leftover lemonade in the refrigerator for tomorrow.

Later that evening, he notices his mother and father sitting on the porch, laughing and drinking his lemonade.

“Hey,” says the boy as he watches potential revenue do down his parents’ throats, “why are you drinking my lemonade?”

“Oh, don’t worry sweetie, I will take you to get some more lemons tomorrow, besides I bought the lemons anyway” replies his mother.

The next morning, the boy asks his mom to take him to get more lemons and ice.  He pulls together $3 of his revenue from the day before, determined to pay for this next batch himself.  As they drive to the store, the boy notices that they are headed in the wrong direction.

“Where are we going,” he asks his mother.

“Oh, we’re going to go to the local grocer.  I heard he is struggling and could use our business,” replied his mother.

When they arrive at the store, the boy heads straight for the lemons.  Immediately, he notices that the lemons in this store are significantly more than at the other store.  When he complains to his mom that he doesn’t even think he has enough money for lemons at this store, she reassures him that it is alright and that she will give him the difference.  The boy begrudgingly agrees, knowing that he’ll have to wait another day to be free from his mother’s charity.

The boy’s bad fortune would not end there.  As soon as he had his stand set-up and lemonade ready to go, a huge downpour of rain began.  He hurriedly packs up his gear and headed inside.  Setting his pitcher down at the kitchen table, he notices that the lemonade looks significantly less yellow.  The rain seemed to have diluted the once fresh and flavorful concoction.

The next morning, the boy was ready again to go to the store.  This time, however, his mother was broke.  She had no money for him to purchase more lemons.  Sensing a catastrophic breakdown, she rushes next door to her in-laws and asks to borrow money.  She has a hot and cold relationship with them, but she senses that the stability of her child is at stake (at least for the day) and deems the move necessary.

The boy gets his lemons and has his best day of sales, 6 cups.  That’s $12 bucks in his pocket.  He is feeling pretty good until his mom asks him for some of that money right back so she doesn’t have to ‘owe’ her in-laws.  He obliges and looks at what is left … not much.

This time, however, rather than planning for the next day, he runs to 7-11 purchases a red bull and chips.  As he’s walking home, he starts to wonder how much his friend Johnny makes on his paper route.

Teacherman Entrepreneurship Entrepreneurship

Dear Mr. Obama

I truly believe that in terms of intelligence you are the smartest president we have had in very long time. HOWEVER, that does not mean your policies will work. Your policies are merely a continuation of what the establishment has taught you, after all, history is written by the victors and in this case the victors were Kenysians.

Have you read Henry Hazlitt’s Economics in One Lesson? If you haven’t I will summarize chapter 5 for you and the rest of your associates. Chapter Five: Taxes Discourage Production. Where taxation hampers growth and discourages investment. It is an astounding, 2.5 pages.

You seem to think that your stimulus package will “create investment and jobs” however Hazlitt would contend it does the exact opposite.

First and foremost, Hazlitt points out that many fail to think of taxes, when they are levied, as taxing (A) to pay (B), but that is in fact exactly what you are doing. In fact, you’re taxing those in the upper middle class (the entrepreneur) that provide the “jobs”. Now in this case you are taxing A (the entrepreneur making, let’s say, $300k) to pay B (Citigroup, AIG, Bear Stearns, and, soon to included, will be executives of our nation’s insurance companies). In this case, (B) took excessive risks and made excessive money by making loans with money they didn’t have (which is the nature of factional reserve banking) and paid themselves salaries that were up to 500 times what the masses (A) make.

Now when I read Chapter Five, I thought, well maybe (B) needs a helpful hand in certain situations. I mean, I am grateful for the Subsidized Stafford Loan that allowed me to attend Syracuse University. But my assumption assumes that you taxing (A) the rich to pay be (B) the kid trying pursue the American Dream. In my case that would be a young old from the middle nowhere trying to make my own version of the American dream. Mr. Obama’s version goes something like this: Tax(A) which is the so called rich (small business owner), to pay  bailout (B) the mega rich. Am I missing something here?

Next, Hazlitt comes with assumption that capital investment is needed for entrepreneurial growth. When someone invests they take a 100% downside risk with their cash receive a (assume 28% capital gains tax) 72% possible upside return. Hazlitt states:

If they (the investor) lose, they lose a whole dollar, and if they win, they win only a fraction of a whole dollar, they decide that is foolish to take risks with their capital. In additional capital available for risk taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the other part that does come into existence is discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

From my perspective I am seeing smart money move into muni’s/corporate debt market and out of equities. Isn’t equity investment where the jobs come from? Should I not worry? Will you Mr. Obama provide the jobs so we then will be able to resume being a productive country? What about my American Dream? I am not sure being a government employee was part of that Dream? We all know that government is very efficient and productive so I hope you get this stimulus rolling. Now I understand why you  are not worried about the re emergence of a bull market in US equities, it’s because you plan on making a full blown bull market in Government employment.

God Bless Change, God Bless America, God Bless Mr. Obama.

Signed From the Grave

H.L Mecken

MisesBeliever Interventionism, Taxes entrepreneur, Hazlitt, Mecken, muni market, obama, Taxes

Picking up off a recent blog article that made some waves, this post is in support of H.R. 1207.  Ron Paul introduced the Federal Reserve Transparency Act of 2009 last week.  According to Paul, the bill is the first step to open up the Fed’s ‘opaque’ operations to the public.  As Rothbard put it in The Case Against the Fed,

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies. It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional  Committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

Teacherman Federal Reserve, Politics Federal Reserve, ron paul, rothbard, transparency