Thursday, March 26, 2015

Meet the Left's Newest Capitalist Straw Man: The Shareholder as Mafia Boss

In a recent Washington Post op-ed, Harold Meyerson, an avowed socialist, compares corporations who buy back their own shares to Las Vegas mafia bosses who used to skim casino profits.  The basis for his smear is "a recent paper by J.W. Mason, an economist at the City University of New York and a fellow at the Roosevelt Institute, [who] documents the great shift in what U.S. corporations have done with their money."  Based on this paper, Meyerson writes:
In the 1960s and ’70s, about 40 cents of every dollar that a corporation either borrowed or realized in net earnings went into investment in its facilities, research or new hires. Since the ’80s, however, just 10 cents of those dollars have gone to investment. As a result of the shareholder revolution, the money that once went to expansion and new ventures has gone instead into shareholders’ pockets. 
Ironically, Meyerson decries the lack of capital investment and follows Mason (who follows William Lazonick and others) to imply that this purported lack of investment represents a kind of new class struggle between shareholder activists and employees who apparently stand to benefit only if the company invests its cash in something.  Meyerson writes:
Unlike the Vegas skim, which still allowed for sufficient floor show investment, the new skim, which is both ongoing and nationwide, has greatly reduced productive investment in the United States. The new skimmers have been the nation’s largest investors, and although they haven’t had anybody whacked, they have managed, as the mob never did, to bring America’s middle class to its knees.
So, have shareholders always been just a moral notch above mafia killers who brutally execute their enemies or has something changed?  According to Meyerson, the answer is that modern businessmen have become more greedy. You see, in the good old decades after World War II (you know, back when socialists like Meyerson were great advocates of big business), corporate investment was under the control of "the managers" whose high-minded "investments, chiefly from retained earnings, led to a generation of high productivity growth accompanied by steadily rising worker incomes, thanks to substantial unionization." [emphasis mine].  Then, along came Milton Friedman who "propounded the belief that the sole corporate mission was to reward shareholders" and corporations began linking top managers' performance to stock performance (pay based on performance - those darn capitalists!). This caused a new generation of evil businessmen from Wall Street to replace the good businessmen who used to not care so much about money.  He writes:
In the 1980s,...the managerially controlled firm was challenged by corporate raiders who sought to create leaner firms with lower wages in order to return more money to shareholders. A newly deregulated financial sector encouraged corporations to fund their endeavors more from borrowing — which enriched Wall Street — than from earnings.
These ideas appear to be reflecting throughout various left wing echo chambers and even promise to be a political issue in 2016 as "there are hints that Democrats might revisit it in the presidential campaign next year."  Meyerson and his ilk have created yet another capitalist straw man known as "large investors" (Big Investor?) who they attack for "skimming profits" and bringing "the middle class to its knees" while their leftist brethren surely nod their zombie heads in approval.

So, is it true, as Meyerson suggests, that linking manager pay to stock performance and distributing gains to shareholders is tantamount to violent criminal behavior?  Are the pension funds, 401k, and IRA participants (the middle class!) that benefit from rising stock prices really being brought to their knees?  Is it necessarily bad if corporations, on a relative basis, return a larger portion of earnings to shareholders rather than investing in new projects? What are these wonderful "new ventures" cited by Meyerson that should be funded by "the managers?" Does he presume the shareholders will reinvest the money in worse (less profitable) projects than the new projects he imagines?  Are the benefactors of the shareholders' new investments less worthy than those who would benefit from the projects envisioned by Meyerson?  Are "the managers" of corporations or central planners in Washington omniscient oracles who really know what's best?

If a business believes their capital is best deployed in X rather than Y then they will move their capital from X to Y.  Any one businessman or company can make egregious errors in their calculations, but the market will punish them with losses, and if they continue to make errors they will be put out of business.  In the long run and in aggregate, capitalism, ensures that capital will be allocated as profitably as human beings are capable of allocating.  Only government policies, in many different forms, can divert capital from its highest and best use.  So, if Meyerson is truly concerned that capital is being misallocated, he should start by analyzing Marxist inspired political policies themselves as the explanation.

For starters, Mason's own paper suggests that Meyerson (and perhaps Mason) has his logic backward.  Rather than view the 1980's as a turning point from the management practices of high minded businessmen to the vicious tactics of corporate raiders, it could be argued that it was various legal and regulatory changes which finally liberated shareholders to force stodgy corporations into being more productive and accountable. Mason provides a very good synopsis of the intellectual, legal, and institutional changes in financial markets that made the takeover movement possible.  For example, he cites "a number of legislative and administrative reforms that made it more feasible for shareholders to assert their notional power over management:"
Among these were legal challenges to laws limiting hostile takeovers of corporations, including the Supreme Court’s 1982 decision in Edgar v. MITE striking down Illinois’s anti-takeover law and similar laws in other states (Davis 2009). Also important was the revision of anti-trust regulations by the Reagan Justice Department, also in 1982, which relaxed the limits on concentration within industries. This opened up new possibilities for intra-industry mergers and undermined the logic of conglomerates, the major initial target of hostile takeovers (Roe 1996).
The "adoption of Rule 10b-18 by the SEC in 1982,... made large-scale share repurchases legal for the first time (Grullon and Michaely 2002)" and "made shareholder value the operational principle of corporate finance,  He notes that "institutional changes in financial markets...made takeovers and other changes of control more feasible." For example, the relaxation of "the rules on the classes of investments permissible by various institutional funds" resulted in a "broadening of the funds available to finance changes in corporate control" while compensation practices like stock options put top executives closer to the "worldview" of shareholders.

If anything, these changes should be seen as positive developments that utterly transformed the corporate landscape, and ironically, served as a factor in causing real wages to ultimately rise. Since it is productivity that actually raises real wages for labor, any policy which constrains or restricts productivity, diminishes the increase in real wages, a principle about which Meyerson is surely ignorant. The disruptions caused by intellectual, regulatory, and institutional changes in the 1980s actually benefited all to the extent that these changes resulted in more freedom, more productivity, and higher real wages.  To his credit, Mason recognizes this possibility:
Supporters of the shareholder revolution would argue that this is a change for the better and that the high level of internally funded projects under the old managerial regime included a large proportion of white elephants whose expected returns were too low to justify their expense. Whether or not the shareholder-dominated firm chooses its projects more wisely is beyond the scope of this paper.
So even Mason admits that shareholders actually can prevent managers from investing in "white elephants," a conclusion that Meyerson not only doesn't acknowledge in his diatribe, but contradicts when he claims "it was the coming of both globalization and the shareholder revolution in the 1980s that undid the broadly shared prosperity that Americans had enjoyed in the mid-20th century."    

Perhaps Meyerson was referring to the main theme of Mason's paper centered upon his empirical observation of the "weakening correlations of cash flow and borrowing with investment and a strengthening of correlations with shareholder payouts" - a development he attributes to a "shift from managerialism to rentier dominance."   In other words, he argues that since the managers lost control to the shareholders, there has been an increase in shareholder payouts and a decline in corporate investment.  He recognizes that "when profits are low and credit is expensive, there will not be much difference between the two regimes." However, he recognizes the role of cheap credit in creating this regime shift: 
[W]hen profits are high and credit is cheap, it’s a different story. If the cost of borrowing is less than the rentier opportunity cost, it will make sense for the rentier dominated firm to incur debt simply in order to increase payouts to shareholders — something the managerial firm would never do. [emphasis mine]
In other words, he identifies the distinguishing characteristic between the two regimes as an economic state in which profits are high and credit is cheap.  What causes such a state?    We know that credit expansion, brought about primarily by the government, affects the interest rate by creating a larger pool of funds and creating less demand for money holding in the short run.  It also boosts profits by inflating business revenue relative to costs which are depreciated over a longer time period.  Of course, credit expansion can affect the share buyback process by artificially decreasing interest rates and creating less demand for cash holding.  If interest rates are low and profits are high then it can pay for a company to borrow cheaply and buy back its shares and return profits to investors now versus investing in some longer term project.  Can this go on forever? 

In a free market, as corporations issue more and more debt to buy the shares, interest rates would tend to rise, while rising stock prices would result in higher (less attractive) valuations at the same or declining profit levels.  At some level of interest rate, it would no longer pay for a corporation to buy back its own shares.  The government can short circuit this natural process only by artificially keeping interest rates low by accelerating its credit expansion.  This is exactly what the Fed has accomplished through its various QE programs, and stock buybacks funded through corporate debt issuance have been taking place at an unprecedented rate.  

The creation of money out of thin air does not create real wealth, but it massively distorts the capital markets and enriches holders of assets in nominal terms relative to everybody else. The actual source of capital misallocation is credit expansion which distorts the interest rate and sends false signals to investors putting businessmen in the position of a doctor who takes an x-ray while some other force distorts the output. 

Rather than focusing on the causes of a persistent state of high profits and cheap credit, Mason attributes the empirical data to the conflicting interests (hurdle rates) of managers and shareholders. This leads to his arbitrary claim that payouts to shareholders are "something the managerial firm would never do."  Why?  Maybe it's true that managers would not borrow to buy back shares.  Maybe they would invest the capital instead.  But, in what?  Why are we to assume that investment, any investment, is necessarily good and that share buybacks are necessarily not as productive?    When the Fed distorts the market, there is no way to know. Even Mason seems to acknowledge the Fed's role in this mess but is at a loss to explain the outcome: 
In particular, the fact that low interest rates have encouraged increased corporate lending and borrowing without any accompanying boom in real investment should raise doubts about whether we can expect to achieve full employment through measures aimed at increasing the credit supply.
So, creating money out of thin air doesn't lead to real output and employment gains?  Mountains of government regulations, spiraling government debt, and the highest corporate tax rate in the developed world isn't working?  So will Meyerson argue for abolishing the Fed and returning to a system of private banking and laissez faire?    

Meyerson's and Mason's inability to reach the conclusion that it is government intervention in the economy that distorts capital markets, destroys productivity, and leads to declining real wages stems from a deep underlying premise - the Marxist premise that profit seeking behavior is necessarily exploitative, i.e., that one person's gain necessitates another person's loss. Meyerson's corporate raider (the term is a smear) is likened to a Mafia kingpin who crushes and destroys his enemy for personal gain and now serves as the latest capitalist straw man for pundits like him to justify, yes, more government intervention.   To them, the non-profit manager is a kind of omniscient caretaker looking out for the good of everybody, who would have the good sense not to buy back shares, and certainly not foolish enough print money to keep interest rates artificially low...   

Monday, March 9, 2015

The Deception of Central Banking - A Parable

Let's say a guy is about to counterfeit millions of dollars and spend it in his town (he's been empowered by secret government commission) with the goal of producing a perceived economic boom.  To have the greatest effect, would he be better off publicly announcing his intention to counterfeit with the proviso that if prices go up too much he will stop, or would he be better off spending the counterfeit money in secret?

If he announces his intentions, banks and businesses in the town will immediately begin to factor his future spending into their prices and inventory decisions.  His promise to stop counterfeiting if prices go up too much will also be taken into account.  Knowing that an indefinite counterfeiting operation will ultimately force prices higher, they will conclude that it is unlikely he will counterfeit indefinitely and will regard the increased spending as temporary.  As he buys more of their goods, they will experience an improved bottom line in the near term, but they will not be incentivized to expand their operations or hoard inventory in the hopes that prices will just keep going up and up as he spends and spends.  The boom is unlikely to ever materialize.    

On the other hand, if he secretly counterfeits and begins spending the money, businesses will notice that they are selling more and more.  Even if they raise their prices a little they will see their sales increase and conclude it is part of a new trend.  As prices go up everywhere, they will realize they can purchase more inventory and just wait for prices to go up further.  Banks will be flush with deposits and able to make loans on more generous terms.  Businesses will expand their operations.  The town will believe they are experiencing a boom.

Notice that for his counterfeiting to result in a perceived boom, he had to trick everyone into thinking that the increased spending volume is real and would continue indefinitely.  It needed to appear that the increased deposits in the bank reflected the real desire of individuals to save more money for longer periods so that businessmen would be fooled into pursuing longer term projects that consume massive amounts of capital.  Conversely, when the businesses anticipated the end of counterfeiting, the whole effect of his actions was relatively inconsequential.  As Ludwig Von Mises wrote in his economic treatise Human Action:
The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth.  If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen's "excess" profits or that it will stop the further progress of credit expansion as soon as"pump-priming" will have resulted in rising prices, no boom can develop.  The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains.  
Unless the businesses believed they could continually gain from the trend, they will not act to expand their business.  In this way, the example shows that even if the man had kept counterfeiting, he would have had to accelerate his pace of counterfeiting to keep the boom going (increasing the gains of the gains) and eventually he would have destroyed the town's monetary system. Von Mises wrote:
The boom can last only as long as the credit expansion progresses at an ever-accelerated pace.  The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market.  But it could not last forever even if inflation and credit expansion were to go on endlessly.  It would then encounter the barriers which prevent the boundless expansion of circulation credit.  It would lead to the crack-up boom and the breakdown of the whole monetary system.  
Von Mises's principles relate to recent events.  In the housing bubble leading up to the 2008 crisis, it was believed that home prices would rise indefinitely.  Credit expansion supported by central bank rate policy, fractional reserve banking, and the federal government's underwriting of mortgages through GSE's caused a massive boom in real estate prices.  More credit begat home price increases and house price increases begat more credit.    

Since that bubble burst in the 2008 crisis, global central banks such as the Federal Reserve, ECB, and Bank of Japan have embarked on an effort seemingly to create another phony credit boom.  But this time, they have maintained a policy of publicly announcing their so-called "quantitative easing" efforts in advance.  They have generally pledged to buy their government's bonds (with fake money) of a certain magnitude for a certain period of time with the goal of increasing consumer prices along with the proviso that if prices rise too quickly then they will stop and potentially even go in reverse, i.e., remove money from the monetary system.    As we would expect based on the above, despite their best efforts, these central banks have been unable to create the kind of phony boom they so desperately crave.

Central banking requires that government bureaucrats act in a way to distort the entire economic system by introducing counterfeit credit into the monetary system in such a way that businessmen are continually fooled into acting in a way that mimics the behavior of businessmen operating in an actual economic boom.  The fact that central banking requires deception does not imply that we should advocate deception. On the contrary, the point is that central banking, by its nature, requires massive deception and is a symptom of its evil and impracticality.  

Thursday, March 5, 2015

The Real Problem is Strong Central Banks - Not Strong Currencies

One myth driving the irrational policies of central planners is the idea that a depreciating currency is good for a domestic economy.  Presently, this myth is fueling a so-called "currency war" in which each country attempts to depreciate its own currency relative to others.  In essence, the idea is that if you make your currency cheaper relative to other currencies, then people in the other country will buy more of your stuff.  In turn, this will help the export industry in your country thus constituting an economic advantage.  Of course, this idea is hundreds of years old and a major feature of the infamous economic theory known as mercantilism.

Bastiat and Hazlitt taught us that most economic myths persist because people only focus on one direct effect of a policy rather than on all the direct and indirect effects or unintended consequences.  In fact, the value of currency depreciation can be debunked with a simple example.  Let's assume on Day 1,  the currency exchange rate between euros and dollars is 1 to 1 and let's focus on the German company BMW selling one car for 100 euro:

Day 1

     Exchange rate = 1 $/Euro
     BMW (euro) = 100 Euro
     BMW (dollar) = 100 euro * 1 $/euro = $100

Say the Germans depreciate their currency, and further assume that BMW produces all of its cars in Germany and uses all of its inputs from other German companies, and maintains its euro price at 100.

Day 2

     Exchange rate = 0.25 $/Euro
     BMW (euro)  = 100 Euro
     BMW (dollars) = 100 euro * 0.25 $/euro = $25

In the U.S., the BMW now only costs $25!  The total American demand for cars was $100 and at the previous rate, Americans could afford to buy 1 car.  But now, Americans can afford 4 cars at $25 each and be no worse off.

     BMW revenue (Dollars) = 4 cars * $25 = $100
     BMW revenue (Euro) = $100* 1/0.25 Euro/$ = 400 Euros

BMW and its employees are thrilled!  They have made $100 which is now worth 400 Euros whereas before, they were likely to only make 100 Euros from the sale of 1 car. BMW's stock price (in euro) may even go up as would other company's stock who are similarly affected.  BMW is better off, but is the German economy better off in aggregate?

Well, what does BMW do with the $100 it received?  It can only spend the $100 in the U.S.  Even if BMW converts the currency and gets the 400 euros, then the exchanger paid out 400 euros to BMW and now has the $100.  What can the $100 buy?  The $100 can only buy the same amount as before in the U.S., even though it costs 4 times as much for a German in euro.   For example, let's look at this from the perspective of a German who wishes to buy a US Farm Tractor.    


Day 1

     Exchange rate = 1 $/Euro
     US Farm Tractor (dollars) = $100
     US Farm Tractor (euro) = $100 * 1 euro/$  =  100 euros


Day 2

     Exchange rate = 0.25 $/Euro
     US Farm Tractor (dollars) = $100
     US Farm Tractor (euros) = $100 * (1/0.25) euro/$  =  400 euros

The German tractor buyer's cost has gone up to 400 Euros.  While BMW is thrilled that it is making 4 times more money selling its cars, the German farmer has to pay 4 times as much for the same American tractor.  BMW benefited, but the German farmer lost.

In general, the $100 received by the Germans will be spent in the U.S. for something - if not by BMW or a farmer, then by someone further down the line in Germany who exchanged the euros.  If the purchaser of the $100 does not want a consumer product, they would deposit it in a U.S. bank or more likely, buy a U.S. dollar bond.  But whether they buy $100 worth of U.S. bonds or $100 worth of U.S. products, since it now costs them 400 euros, they get 1/4 as much U.S. stuff on day 1 as on day 2.  On Day 1, in aggregate, Germans produced 1 car in exchange for 1 tractor.  Now they have to produce 4 cars in exchange for 1 tractor.  How is this good for the German economy?

Even from this contrived example, you'd have to conclude that currency depreciation is at best a zero sum game in which some (exporters) benefit at the expense of others (non-exporters).  In fact, it's much worse than a zero sum game as Robert Murphy and Patrick Barron demonstrate in more detail. In Bad Idea: Devaluing Currency to Help Exporters, Frank Hollenbeck demonstrates the negative effects of currency depreciation on workers who must "pay higher import prices resulting from depreciation" reaching a familiar conclusion when analyzing central banking:
Few journalists seem to understand that a policy to reduce the foreign exchange value of a currency is, in reality, a policy to transfer wealth from workers — the middle class and the poor — to the wealthier owners of export industries. It is another example of the central bank acting as a reverse Robin Hood, taking from the have-nots to give to the haves.
So why would the central planning bureaucrats engage in "currency wars?"  The reason is that central planners are politicians who do what is in their own short term best interest.  In this case, they seek to politically appease their domestic export lobbies cheered on by Keynesian cranks like Paul Krugman.

As central banks engage in currency depreciation and the so-called "race to the bottom" goes on, it becomes even more clear that the real threat to any economy is not a strong currency, but a strong central bank.  The solution is to end the regime of central banking and to replace political control of our money with a private banking system based on a 100% reserve gold standard.  

Monday, February 16, 2015

Americans Should Support Freedom and Individual Rights Rather than Democrats or Republicans

I am always amazed at how inconsistent people are when it comes to their political views. 

For example, many of the same people who fight for repealing marijuana prohibition, based on the correct premise that people have a right to their own body, at the same time support draconian government regulation of drug companies by the FDA or support laws giving bureaucrats power to control what health insurance they can buy. 


Many of the same people who decry government interference in the economy, under the correct premise that individuals have a right to own and freely trade property, seek to give the government power over women's bodies to coerce them into unwanted pregnancies or support trampling civil liberties in the name of "fighting terrorism."    


Many of the same activists who attack the power of the so-called "evil corporations" and support anti-trust measures, supposedly to prevent the concentration of power, turn around and seek to create the largest monopoly of all - a socialist government, backed by the power of an armed military, to confiscate and nationalize private property.    


Many Democrats properly denounced the Bush administration for usurping individual freedom under the guise of fighting terrorism yet look the other way when perpetrated by Obama's intelligence apparatus. They oppose government censorship of their own ideas but seek government regulation of right wing talk radio through the fairness doctrine or the implementation of so-called speech codes.  Many Republicans cheered the establishment of the Department of Homeland Security and the implementation of policies aimed at neutering civil liberties under Bush but now, correctly, vilify the NSA and other intelligence agencies for comprising an Orwellian police state.


The root of the problem is ignorance of the true nature of individual rights and the proper function of government.  Freedom means the right to think, produce, and own private property as long as you do not violate another's rights by initiating physical force.  The function of government is to secure these rights by banishing the use of force except in self-defense. Broadly applying the concept of individual rights was the essence of the Founding Father's achievement.

Ignorance or evasion of the meaning and nature of rights is why both the mainstream political parties seek to violate individual rights, just at different times and in slightly different forms.  According to a recent report from Gallup, perhaps American are waking up. "Forty-two percent of Americans, on average, identified as political independents in 2013, the highest Gallup has measured since it began conducting interviews by telephone 25 years ago." While this poll is a step in the right direction, it's important for those seeking alternatives to understand the nature of freedom and individual rights and to uphold a non-contradictory platform of ideas.

Wednesday, February 12, 2014

To the Offended Generation, With No Apology

When MSNBC host, Martin Bashir, declared that "someone should defecate and urinate in [Sarah] Palin's mouth, a punishment delivered to some slaves," he immediately issued an on-air apology declaring: "My words were wholly unacceptable. They were neither accurate, nor fair. They were unworthy of anyone who would claim to have an interest in politics."  Then, a few weeks ago, "MSNBC host Melissa Harris-Perry offered an unreserved and tearful apology on her show...for remarks she made last week about Mitt Romney’s family and his recently adopted African-American grandson" tweeting: "I am sorry. Without reservation or qualification. I apologize to the Romney family." Most recently, it was reported that "MSNBC President Phil Griffin apologized to Republican National Committee Chairman Reince Priebus on Thursday for a tweet suggesting conservatives “hate” interracial marriages and “dismissed” the staffer who authored it."

Why were these apologies deemed necessary? For example, the Bashir incident was not a spur of the moment reaction. Evidently, he thought Palin's equation of America's budget deficit to slavery was inappropriate and suggested Palin endure the actual suffering of a slave, and he meant exactly what he wrote. These MSNBC pundits are left wing activists and their statements genuinely reflect their beliefs. While many might disagree with them, what's wrong with expressing their viewpoint on their political talk shows? Why can't these pundits "own" their beliefs and proudly profess them even in the teeth of vehement criticism?

The "controversial statement" followed by "The Apology" appears to be a kind of phenomenon sweeping American culture whereby momentary outbursts of actual thought are swiftly followed by denials and soulful public remorse. To "offend" another by speaking your mind is regarded as a criminal transgression mitigated only through the issuance of a perfunctory apology, a process which serves as a kind of ritualized public catharsis. Rarely is the actual meaning of the "offending" words ever considered or analyzed. Instead, the mere tone of the words and their presumed ability to offend the victim is regarded as the primary concern. Modern intellectuals have replaced objective communication with introspective assessments of feelings to which they modulate their indignation - or apologies.

Contrast this with comedian Natasha Leggero who recently refused to apologize after a joke that targeted Pearl Harbor veterans during a New Year's Eve telecast on NBC. She explained her non-apology on her Tumblr page:
I’m not sorry. I don’t think the amazing courage of American veterans and specifically those who survived Pearl Harbor is in any way diminished by a comedian making a joke about dentures on television. Do we really believe that the people who fought and defended our freedom against Nazis and the Axis powers will find a joke about Spaghetti O’s too much to bear? Sorry, I have more respect for Veterans than to think their honor can be impugned by a glamorous, charming comedian in a fur hat.
In this rare case, rather than succumb to politically correct pressure, Leggero stood her ground and actually intelligently analyzed the nature and intention of the joke ultimately demonstrating more respect for her supposed "victims" than her critics could likely ever conceive.

The progress and vitality of a free society is founded upon vigorous open debate, not retreat and evasion. Consider America's founding generation in the tumultuous 1790s, a period Jefferson dubbed "the reign of witches", when Benjamin Franklin's grandson, Benjamin Franklin Bache, and William Duane poured invective from the pages of their Aurora newspaper characterizing George Washington, the Father of our Country, as a "coward, a traitor, and a murderer" and John Adams "a blind, bald, crippled, toothless, dotard." Bache was ultimately arrested under the Alien and Sedition Acts where he died of yellow fever in captivity.  He never apologized nor did Washington or Adams.          

It is easy to cynically dismiss The Apology as spin doctoring or damage control in the social media age, but I hold that there is a deeper cause. Modern philosophy's assault on reason and objectivity has led to the idea that there is no truth, that nothing is black and white, that there is no right and wrong and no provable standards of morality or achievement.  Ironically, it is the left's own subjectivism that underlies their MSNBC apologies. They are such subjectivists, they cannot even bring themselves to stand by their own criticism. As soon as they utter even a semblance of actual belief, rather than attempt to defend their remarks with a logical argument, they ignominiously retreat into the morass of neutrality and snarky evasion.

The total collapse of objective standards is the essence of today's culture. The core of modern progressive education appears not to be teaching children how to ascertain truth by thinking objectively and analytically, but rather making them feel good by intentionally eschewing standards. Rather than striving to meet an objective standard of excellence, educators are concerned only with propping up the students' pseudo self-esteem inculcated through years of undeserved praise , trophies for all, and smiley faces on "fuzzy" math tests. Rather than teaching that pride is earned through actual achievement and willingness to suffer the consequences of failure, parents and educators construct a psychological house of cards ready to crumble at the first whiff of criticism.

While the left cannot bring itself to acknowledge objective individual achievement, there is one attribute they do urge us to celebrate - our membership in a group. Since the subjectivist left denies the possibility of rational, independent judgement and thus eschews the precepts of individualism, they regard people, not as individuals, but as members of collectives whose identities are determined by the attributes of their group. Rather than see individuals as unique products of choices exercised through freewill, to be judged according to "the content of their character", the multiculturalist left adopts the racist premise that individuals are products of their genetic linkage to some group, conditioned by their circumstances, their "environment", or their race, socio-economic class, or gender.

When individualism is replaced by collectivism, one's identity and sense of self-worth becomes tied to membership in a particular group.   Rather than seek individual goals and achievements by meeting and surpassing objective standards of excellence, individuals are encouraged to "celebrate" their group identity. Note that multiculturalism emphasizes "cultural diversity" rather than "individual" diversity. The implication is that actual differences can only be found within differing ethnicity's - not within different individual minds (see, for example, "whiteness studies").  Since individuals are essentially regarded as interchangeable members of a social organization, any affront to the group is a challenge to the member's pseudo self-esteem derived from membership in the collective - a notion that gives rise to the entire political correctness movement.    

The rejection of objective truth means that modern intellectuals must view ideas as the arbitrary products of conditioned mobs (see identity politics). This philosophy is responsible for pragmatic admonishments for politicians to disregard ideology and just "get something done."  In other words, according to them, it is fruitless to engage in ideological debates over archaic notions of principles related to the purpose of government, individual rights, and the laws of economics, because no such truth is available. Therefore, it is not necessary to reason or offer a policy that is logically consistent with abstract principles. One must forge consensus and compromise, generally through non-cognitive forms of appeal to emotion or fear.  And just what is it they should get done?  When you combine collectivism with the culture's default altruist ethos, it translates politically to egalitarianism - the idea that individuals should receive equal outcomes regardless of their ability, character, or productivity and to statism, the idea that the state must initiate force against individuals to achieve these economic and social outcomes.

America was once a nation of self-confident, resilient individuals eager to freely apply their minds to pursue happiness by overcoming the hardships of life.  The non-objectivity and relativism of post-modern philosophy has spawned an Offended Generation - a pathetic lot of fragile, whining imbeciles demanding a blue ribbon for existing and an Apology for being a victim of everything else that comes with it.

Monday, January 27, 2014

More on Bitcoin: Why It Cannot Replace Money

There has been much debate amongst economists over the nature and usage of bitcoins.  I recently wrote a post in which I briefly summarized the facts that give rise to the need for exchange and the necessary attributes of money, concluding that bitcoins will one day "go to zero" in terms of the gold price.  In the wake of many good comments, this post is a follow-up to that post and elaborates my views on the nature of bitcoins.  

First, it's important to define a few terms related to the meaning of exchange and money.  Following Reisman's Capitalism, a "media of exchange" are goods "sought neither as articles of personal consumption nor as means of further production, but as means of effecting further exchanges."  Media of exchange can be just about anything including cigarettes, cattle, furs, etc.  "The acceptability of the most preferred medium or media of exchange tends to go on increasing, until it or they are universally acceptable-i.e., have developed into money. Money is merely a medium of exchange whose use has grown to the point where it is directly and readily exchangeable against all other goods in a given geographical area." As discussed in the previous post, precious metals became accepted as money due to their unique physical properties.

Another important concept when understanding the nature of bitcoins is "standard money." Again quoting Reisman: "Standard money ...is money that is not itself a claim to anything further.  It possesses ultimate debt-paying power, in that when it is received no further claim to be paid is present.  Under a gold standard, standard money is gold.  Any paper money that exists is a claim to it."  

In a 2013 article, The Bitcoin Money Myth, Austrian economist Frank Shostak wrote: "Bitcoin is not a new form of money that replaces previous forms, but rather a new way of employing existent money in transactions. Because Bitcoin is not real money but merely a different way of employing existent fiat money, obviously it cannot replace it." In other words, a bitcoin is not itself money, because it always relies on an actual form of money (standard money) to underlie it. 

To see this point, consider the following example.  Most people are familiar with Western Union.  It is a way to transfer money to someone in a different place. You can go to a Western Union office, give them a certain amount of cash, and someone in a different city can go to a Western Union office and get the money.  Western Union provides a transferring function and you pay them a fee for their service. 

Let's say Western Union created tickets.  One buys a ticket for say $100.  He can then send the ticket to someone, rather than the $100 bill. The ticket is market "$100 payable on demand at any Western Union office."  When someone receives the ticket, he can take it to a Western Union office and get the $100 in cash. He may be able to trade the ticket to someone for a good or service because the recipient knows he can take the ticket to a Western Union office and get $100.  The tickets in this instance represent transferable claims to standard money payable upon demand to the holders of the tickets.      

The ticket is only valuable for three primary reasons.  First, the ticket is redeemable for $100 in standard money (in this context, the $100 fiat currency is standard money). In other words, the Western Union tickets would have no value in and of themselves.  Their value depends on the existence of, in this case, fiat currency or the $100. Second, the ticket is a legal obligation on behalf of the Western Union company to pay the ticket owner the $100 so that the bearer has a legal claim.  Third, the dollar amount, $100 in this case, is known and not subject to change.         

Bitcoin essentially provides a transfer function.  Like the Western Union tickets, one buys a bitcoin for a certain price and the transaction is recorded.  One can then send a bitcoin to another party to pay for a certain good or service if they are willing to accept it.  With respect to this transfer function, Bitcoin employs sophisticated network technology and appears to be very good at transferring the coins securely and anonymously.    
  
Like the Western Union example, when someone receives the bitcoin, the bitcoin is only valuable to the extent that someone can trade it for a good or can sell it to someone else for standard money.  Again, as Shostak notes, its value depends on the existence of another form of money.  However, unlike the Western Union example, no one is legally obligated to redeem a bitcoin for actual money, i.e., once you buy the bitcoin, no one has a legal obligation to accept it or redeem it, and consequently, the value of the bitcoin may change substantially in terms of actual money, potentially being worthless.  
   
This is why, from an economics standpoint, bitcoins cannot replace actual money. Bitcoin is not money in and of itself. The bitcoin price is essentially the price of transferring already existent fiat currency or, in another sense, it is simply a non-binding "claim" to standard money.   Since the value of bitcoins are not in their usage as standard money but in their usage in transactions, bitcoins are only as good as the fiat currencies in which they can be sold.  In other words, since bitcoins are not redeemable in something physical, if fiat currency goes to zero, bitcoins will go to zero.  Bitcoins may in fact go to zero even if fiat currency does not go to zero, if people just decide to stop using them for some reason. However, if fiat currency goes to zero, in terms of gold, what good is a bitcoin in its present form?    

So why does anyone use bitcoin and what accounts for its popularity in some countries and industries?  Merchants or individuals who accept bitcoins in foreign countries are betting that they can either exchange the bitcoins for something or cash them in for a more stable currency in the future as opposed to accepting local currency.  This is a rational bet if you live in a country with a tyrannical government and/or an unstable currency.  I would rather possess an anonymous potential claim to a valuable currency (in the form of a bitcoin) than possess a currency which is itself of little future value or obtained under monitoring from a government authority (Iran, China, etc.).

While bitcoins may serve a purpose and be of value in this and many other contexts, its actual nature, purpose and value should be better understood by potential buyers and sellers.   

Friday, January 24, 2014

Why Bitcoins Will Go To Zero, but Gold Will Not

If you lived in a simple civil society, how would you survive?  First, you’d have to do something -  like make a tool, cut some wood, harvest some food, catch some fish, etc.  Otherwise, you would just lay there and die.

If you wanted something from someone else, you would not go up to them and say “give me your stuff!” without starting a fight – remember, this is civil society.  You would offer them something in exchange. From time to time, if you wanted to give something away or someone gave you something for nothing, fine, but that would be the exception, not the rule.  If you keep asking for free stuff, that usually doesn’t go over very well.  If you demand free stuff, it leads to fights and wars.          

This brings us to a cardinal rule of economics, and life: there is no such thing as a free lunch.  Someone has to do something in order to survive.

To go beyond mere survival, to flourish, people have to do even more work and succeed at living to such an extent that they can survive while spending time thinking, inventing, and producing.  For example, if one guy figures out how to produce the same amount of food that used to take 10 guys, then the other 9 guys can work on other things besides food like inventing engines, spaceships, medicine, or computers to name a few. This is how human beings actually advance – how they live longer, healthier, and happier.          

If you thoroughly understand and integrate this principle into your thinking, you will be able to detect about 90%-100% of the BS that flows from the modern economics profession.  When a PhD or Federal Reserve official tells you that there is a magic way to create economic growth and prosperity without work or production, you will know something is wrong, even if he has a lot of formulas and pie charts.

When people begin advancing, it becomes a hassle to offer a random chicken or piece of wood in exchange for a carrot or some tobacco or whatever.  What if you don’t have exactly what the other guy wants just then?  What if you don’t want to carry a chicken around with you?  It is much easier to offer a standard asset that is valuable to everyone all the time.  If an asset has certain properties, it can serve as this asset.  What are these properties?

First, the asset would have to be universally recognized as a value, i.e., just about everyone could find a use for it.  It would be nice if it was found to be so valuable that a small amount would generally be accepted for just about anything.  This way, you could carry it in your pocket instead of in a wagon.  It would have to be something that could last a long time so you don’t have to worry about it vanishing.  It would have to be divisible so you could cut it up into different sizes to correspond to other goods that have differing values.  It would have to be something that does not change in value constantly due to dramatic changes in its supply.  It would be best if the material was homogeneous, or the same throughout, so that people could agree easily on its value without having to evaluate it every time you want to trade.

For thousands of years, humans have chosen precious metals like gold and silver since they meet all of these criteria (see this for examples of gold's practical uses).  Again, these are not arbitrary criteria set by me or some government agency.  They are criteria that follow from the nature of reality, i.e., the marketplace.  This does not mean people shouldn't barter good for good.  It just means that using a standard asset is much easier most of the time, and people freely choose to use them since it makes trade and life easier and more productive.  Quoting George Reisman (Capitalism, p. 142):                
Thus, an economic system operating under the constraints of barter exchange would obviously offer only very limited opportunities, for division of labor and would thus be extremely primitive.  In essence, to live in such an economic system, one would either have to be a farmer or produce the kinds of things that could be readily exchanged with farmers, such as blacksmithing services. 
What is required for the existence of a division-of-labor society is the existence of money and monetary exchange.  Money is a good readily acceptable in exchange by everyone in a given geographical area, and is sought for the purpose of being reexchanged.
So, the need for production and trade follows from man’s basic nature and the nature of the world in which we live.  The exchange of value for value is a requirement of human life.  The usage of barter or a standard asset such as precious metals in these exchanges is not arbitrary, it is an objective necessity of human survival.  Money, such as gold and silver, is preferable to barter if you want to live a more productive, happier life. Due to their unique properties, precious metals have been the objective money choice of the market for thousands of years.  Contrary to the claims of modern economists, gold and silver are not “barbarous relics” from a bygone age, but vital and necessary tools of exchange, which allow for an advanced division of labor economy and an increasing quality of life.

From the above, it can be seen that Bitcoin, a so-called digital currency, does not have these properties.  A Bitcoin is not itself valuable as you can not make a wire or a bowl or bullets or a house out of Bitcoins like you could with metals. The only thing that makes Bitcoins temporarily valuable is the belief that someone else will accept them in exchange.  In essence, Bitcoin is a like an even crappier fiat currency.  It's crappier, because at least fiat currency is legal tender, i.e., transactions are legally settled upon payment, and one must pay taxes in fiat currency.  Bitcoin does not even have this property!

At some point, Bitcoin's dollar value will go to zero as everyone who holds them tries to sell them to the next person and no one chooses to accept them.  In fact, since dollars are fiat currency, their value will one day go to zero in terms of actually valuable goods for the same reason.  Gold will never go to zero in terms of other commodities because of its special properties, like the fact that you can use it to do work and survive.

While many people express gold as a price in dollars, conceptually, it should be thought of in the reverse way.  An ounce of gold is an ounce of gold and can always be exchanged into other commodities. Gold is the money. Any commodity price can be expressed in terms of a price in ounces of gold. Even the value of dollars or other fiat currencies and Bitcoins can be expressed in terms of gold. For now, at least, those prices are not yet zero.          

Thursday, January 2, 2014

Milbank and the Flawed Philosophy of the Left: Why His "Weakest Generation" Is Actually the "Offended Generation"

There is certainly a profound political rift dividing the culture. However, the state of modern politics is so anti-intellectual and unprincipled that the essential philosophical premises giving rise to the differences (and similarities) are rarely discussed much less understood. In a seemingly innocuous op-ed characterizing the "weakest generation" and disparaging the Tea Party, Washington Post columnist Dana Milbank unwittingly exposes some of the deeper philosophical premises underlying modern liberalism thus providing contrast for those who wish to truly fight for individual rights and freedom.

In the op-ed titled, "The Weakest Generation," Milbank wistfully recalls his parents devotion to the civil rights movement and various other 1960's causes and laments his generation's, Generation X's, lack of an "equivalent" cause. He writes:
There have been many noble causes in my time — the fight against apartheid, for gay rights and for environmentalism — but none captured my generation or required the sort of sacrifice the civil rights movement did.
According to Milbank, his generation "came of age without an existential threat to the nation and without massive social upheaval at home." Evidently, the Cold War "was just a theoretical threat" and "when we were prepared to sacrifice for the country after the 9/11 attacks, President George W. Bush told us to go shopping." He concludes that "[w]e grew up soft: unthreatened, unchallenged and uninspired" because "we lacked a cause greater than self." [emphasis mine]   Exploring the political implications of his views he writes:
The effects on our politics has been profound. Without any concept of actual combat or crisis, a new crop of leaders — Ted Cruz, Rand Paul, Paul Ryan, Sarah Palin — treats governing as a fight to the death, with no possibility of a negotiated peace. Without a transcendent social struggle calling us to seek justice as Americans, they substitute factional causes — Repeal Obamacare! Taxed Enough Already! — or manufactured crises over debt limits and government shutdowns. 
According to Milbank, the fight over the role of the federal government is not a "transcendent social struggle." To him, Tea Party claims about spiraling debt, the loss of liberty, or the overthrow of the American constitution do not represent a "crisis" or even a matter of "justice." Rather, these are merely "factional cause(s)" manufactured by opportunistic politicians.

What accounts for Milbank's definition of a "noble" cause and what underlies his passionate admiration for the civil rights movement and his utter disdain for the Tea Party?

First, note that Milbank is not simply claiming that certain types of threats challenge and inspire activists. Rather, he is implying that without such a condition, a so-called "existential threat" or "cause greater than self," it is seemingly impossible to be "challenged" and "inspired."  

But, if it were really true that recent generations faced no existential crisis, wouldn't that be a cause for great celebration?  Isn't the reason we seek to defeat a threat to render it no longer a threat?  Consider Thomas Edison, Frank Lloyd Wright, Walt Disney, John Roebling, Sir Isaac Newton, Steve Jobs or Linus Pauling. Did these great thinkers, inventors, and businessmen need existential crises, threats, or even physical combat to challenge and inspire them to achieve their values? Are the creations or values of these individuals "noble"? Is the pursuit of a society where individuals freely pursue their own happiness through productive work and voluntary trade a "transcendent cause"?  Is the struggle to create, build, and profit by eradicating a disease, colonizing space, or creating spectacular abundance challenging and inspiring?  

Milbank's argument exposes a major philosophical principle underlying much of modern political thought. The view that purpose and inspiration come from causes "greater than self" compared to the view that the purpose of life is to pursue happiness through the achievement of values directly relates to the moral philosophy of altruism versus the moral philosophy of egoism.    

What underlies Milbank's angst and confusion is what Ayn Rand identified to be the dominant ethical theory of our time: altruism.  Altruism, she wrote, is the idea "that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value."  Altruism, she warned, is not "kindness, good will or respect for the rights of others." Rather, "[t]he irreducible primary of altruism, the basic absolute, is self-sacrifice—which means; self-immolation, self-abnegation, self-denial, self-destruction—which means: the self as a standard of evil, the selfless as a standard of the good."

The antidote to altruism's code of self-destruction is Rand's ethics of egoism or rational selfishness, which holds that "your life belongs to you and the good is to live it" and that "the moral purpose of life is the achievement of your own happiness" and that one should not sacrifice for others nor sacrifice others to oneself.   Rand distinguished individualism from collectivism.  She wrote:
Individualism regards man—every man—as an independent, sovereign entity who possesses an inalienable right to his own life, a right derived from his nature as a rational being. Individualism holds that a civilized society, or any form of association, cooperation or peaceful coexistence among men, can be achieved only on the basis of the recognition of individual rights—and that a group, as such, has no rights other than the individual rights of its members. 
An individualist is inspired by the challenge of purposeful living and a lack of existential crisis is a primary precondition of such a pursuit. Consider the pride of a scientist who discovers a cure for a disease or a new source of energy, or of a businessman that brings a thrilling new product to market. Consider the joy of a parent watching their children grow and learn, or the exhilaration of romantic love, natural discovery, fine art, good food, or the company of close friends. These are all values achieved by an individual and require the condition of freedom from coercion and are, in essence, the opposite of existential crisis.

To the altruist, these are selfish, banal, or bourgeois aspirations that are at best a necessary evil, and not examples of moral living.  To the altruist, virtue consists of sacrifice to some arbitrarily defined "common good."  This fact is what gives rise to the air of moral righteousness about liberal causes. Whether it be some horrifying government program like Obamacare or calls to throttle the global economy to counteract global cooling - I mean warming - I mean climate change - its adherents maintain a disposition of snarky pretentiousness towards dissenters while displaying a cultish reverence for the various causes and gurus of the 1960's.  Tragically, Milbank's acceptance of the altruistic ethics renders his own life and that of his generation existentially meaningless since he cannot find a recipient of extraordinary sacrifice.

Milbank may be right that recent generations are indeed uninspired.  But the fault is not the lack of a cause, it is the philosophy of people like Milbank.  It is the fault of a philosophy that holds sacrifice as a virtue and deprecates the individual pursuit of happiness. Contrary to Milbank's claim of a "weak generation," the morality of altruism has robbed an entire generation of the profound joy and happiness that results from purposeful living and instead substituted guilt and a sneering hatred of success.  Rather than cultivating a benevolent environment of discovery, productivity, creativity, and entrepreneurship, altruism has created an environment of guilt, victimization, sacrifice, and dependency.  As a result, a more apt characterization of recent generations might be the "Offended Generation."         

Another irony of Milbank's argument is that he cites the civil rights movement as the ultimate example of a "transcendent cause" yet denigrates the Tea Party's goals as merely "factional causes" without any true meaning.  How can this be?

After all, the civil rights movement rightfully sought freedom for blacks from government oppression and equal treatment under the law in accordance with the principles underlying the Declaration of Independence and the U.S. Constitution.  In the same way, today's Tea Party seeks freedom from government oppression threatening to subjugate all individuals and seeks a return to the very same American principles that gave birth to the civil rights movement. Wouldn't the original civil rights movement be a natural ally of today's Tea Party movement? After all, was the American Revolution - a war fought for individual liberty against centralized coercive power - not a transcendent cause?

Of course, in reality, any groups which truly fight for individual rights, i.e., the freedom from coercion, are natural allies. However, Milbank and his ilk do not regard the civil rights movement as a movement toward equality of opportunity under the law, i.e, the right for all individuals, regardless of ethnicity, to freely think and act in pursuit of happiness. To Milbank the altruist, the civil rights movement is a movement toward the egalitarian goal of "social justice" or the redistribution of wealth according to the Marxist-altruist credo: "from each according to ability, to each according to need."    The cause of the egoist is individual rights and equal treatment under the law in the pursuit of voluntary cooperation and trade, while the cause of the altruist is the use of government force to extract equal outcomes regardless of effort or ability as the whole panoply of liberal policies since the 1960's demonstrates.  

But isn't altruism and sacrifice required to fight for a noble cause?  Isn't it true that the participants in the American Revolution or World War II or the civil rights struggle were indeed challenged and inspired?  Yes, but Milbank has the logic backward.  To an egoist, fighting for freedom is a selfish value.  The egoist seeks the preconditions for the pursuit of his own values.  Fighting for freedom from the British monarchy, fighting against slavery, fighting against fascism and communism or Islamic totalitarianism are all moral struggles in this context that take great courage. Ironically, it is the selfish pursuit of liberty and happiness that gave the original civil rights struggle a moral underpinning.  African Americans sought the same rights and treatment under the law that white Americans treasured.  The freedom resulting from the securing of these rights is what led to America's prosperity and why the world's immigrants sought refuge here.

The altruist premises of the modern left not only explain why they regard the Tea Party as morally insignificant, it further explains why they so casually and frequently charge the Tea Party with racism.  To the left, civil rights is redistribution of wealth or "social justice," therefore, opponents of government force, taxation, and redistribution (Objectivists, libertarians, Tea Partiers) are not seen as defenders of liberty and individual freedom for all, but simply as opponents of what they regard as "civil rights" and therefore are regarded as "racists."  Of course, this is a preposterously inverted view of racism.  Racism is the attribution of personal characteristics based on race or genetic lineage. The pursuit of equal treatment under the law for all is a moral and noble cause, while the preferred treatment of some individuals based on race is the very definition of racism, yet, the latter is precisely what the left advocates in the form of affirmative action.        

In reality, altruism is incompatible with actual freedom and incompatible with justice. On this point, Rand made the following observation:
If it is true that what I mean by “selfishness” is not what is meant conventionally, then this is one of the worst indictments of altruism: it means that altruism permits no concept of a self-respecting, self-supporting man—a man who supports his life by his own effort and neither sacrifices himself nor others. It means that altruism permits no view of men except as sacrificial animals and profiteers-on-sacrifice, as victims and parasites—that it permits no concept of a benevolent co-existence among men—that it permits no concept of justice.
Note that moral philosophy is not what distinguishes the modern political parties.  In fact, altruist ethics unites the religious right to the secular left - the only difference between them being the object of the sacrifice. For example, the religionist wants you to sacrifice to God, the socialist wants you to sacrifice to the state, the environmentalist wants you to sacrifice to the earth, etc.  The reason why Republicans and Democrats are so similar is their acceptance of the same fundamental moral philosophy. They only disagree on who should sacrifice to whom and how much and is the reason America has been drifting toward socialism for over a hundred years.

The fissures in American politics are based on fundamental philosophy. Defining the debate properly around philosophy helps to simplify and perhaps finally import the highest form of moral righteousness to the case for freedom and individual rights.

Sunday, November 3, 2013

The Mistake of Thinking that Obamacare's Failure is Just a Technology Problem

The rollout of Obamacare has been an unmitigated disaster. From a website that doesn't work to skyrocketing premiums, Americans are finding out "what's in it." The administration and its lackeys have now begun characterizing the problems as due to nothing more than technical problems or so called "glitches" that will be fixed in due time with perhaps another billion dollars of funding. According to this National Review article, Biden "apologized for the disastrous rollout of the federal health-care website , saying that he and President Obama thought that the website was ready, but didn’t understand it themselves." He added:
“Neither he and I are technology geeks, and we assumed that it was up and ready to run,” Biden told HLN’s Christi Paul in an interview. “The good news is — although it’s not, and we apologize for that — we’re confident that by the end of November it will be and there will still be plenty of time for people to register online.”
In other words, according to Biden, the failure of Obamacare is a short term technology problem that could have been fixed if only he and Obama were "technology geeks" that could have personally attended to the engineering of the website.  In another example, after voicing support for the law in September, Starbucks CEO Howard Schultz criticized the rollout of Obamacare but attributed the problem to practical implementation:   
”Unfortunately, in this kind of situation, execution trumps strategy," Schultz said on CNBC. "It might be a great strategy, but the execution is really flawed. It’s off the rails.”
Critics of Obamacare are committing an enormous error if they think the problem is simply a technology problem.  Like public education, public housing, and public toilets, the government's virtual takeover of the health insurance market is doomed to fail, because government intervention in the economy is always doomed to fail. Socialism is not "good in theory" but bad in practice, it is bad in theory and therefore bad in practice.    

Socialism in all its forms must fail because it destroys the private ownership of the means of production and with it the profit motive and the price system.  In fact, socialism's only purpose is the negation of the price system, i.e., the prohibition of private property and free exchange between individuals.  In destroying the price system, socialism destroys the central method of economic calculation by which individual businessmen and consumers weigh revenues and costs and substitutes for it the arbitrary judgments of government bureaucrats. In his treatise, Capitalism (chapter 8), George Reisman thoroughly demonstrates how "capitalism and the price system bring about a harmoniously integrated planning of the entire economic system" concluding: 
...socialism, in destroying the price system, destroys the possibility of economic calculation and the coordination of the activities of separate, independent planners.  It therefore makes rational economic planning impossible and creates chaos.   
The particular case of health care insurance is no different.  The entire system of health insurance was distorted by incentives in the U.S. tax code which led employers to pay employees in benefits rather than wages, a distortion compounded when states began mandating particular benefits which led to rising premiums, a distortion compounded yet again by Obamacare's mandates of even more benefits and regulations which have driven premiums even higher (see FIRM for a detailed history of government intervention in health care).  It is simple to see the effects of this distortion by comparing the heavily distorted health insurance market to the relatively less distorted car insurance market and observing that there is no car insurance crisis nor even discussion of ObamaCarCare, yet.    

At a more fundamental level, socialism represents a negation of man's nature which requires the freedom to think, act, and own property in order to survive and prosper.  Socialism is therefore not "good in theory" but rather, vicious in theory.  It is not a coincidence that it has resulted in nothing but poverty, misery, and tyranny in practice.  On the other hand, as Reisman states:
Freedom and free exchange create an inherent harmony of the rational self-interests of people.  When the actions of individuals are free and do not represent the use of force, their effect is necessarily to benefit everyone involved.  This is because each individual acts to benefit himself and must at the same time benefit those whose cooperation is to be secured, or else he will not receive it.  In addition, no one standing outside the transaction can be harmed, because any evidence of harm to the person or property of others is grounds to prohibit the action as an act of force and violation of freedom.  ....As a result, the inherent tendency of my action is to produce improvement for others as well as myself, and thereby to improve general well-being.
The more frightening aspect of this debacle is that despite a hundred years of theory and practice, so many believe "this time it will be different."  Unless the nature of the universe and reality change, it will not be different this time, whether Biden gets a computer science degree or not.