Optimistic Or Pessimistic?

Are you optimistic or pessimistic about 2015?

If you’ve been reading the many forecasts for 2015, you can’t help but wonder why so many prognosticators are pessimistic — real estate is going to collapse; the stock market will bomb; gold, silver and commodities will plummet! How is it that in our lifetime and our parents’ we see nothing but improvements behind us, and nothing good ahead of us?

Today’s pessimists point to the terrorist attacks in Paris, our national debt out of control, income inequality, immigrants overtaking the country, and global warming destroying the Earth. Moreover, if you think this universe is bad, you should see some of the others.

A couple worried that their 5-year-old twins were developing extreme personalities — one a congenital pessimist, the other an incurable optimist — took the boys to a psychiatrist. Trying to assuage the pessimist, the psychiatrist showed him a room piled high with new toys. Instead of jumping for joy, he cried, saying if he played with the toys, he would only break them. Next, the psychiatrist tried dampening the optimist by showing him a room filled with horse manure. Instead of groaning in disgust, the little boy jumped into the middle of the pile, flaying about and digging. “What are you doing?’ asked the psychiatrist. “You can’t fool me with all this manure,” the child replied excitedly. “There must be a pony here somewhere.”

In 1980, the extreme pessimist Paul Ehrlich, Stanford University professor and author of “The Population Bomb,” was willing to wager that England will not exist in the year 2000, and hundreds of millions of people will die as the world runs out of food and commodities. Economist Julian Simon, an optimist, said that’s stupid and countered with a $1,000 bet that the cost of raw materials will not rise in the next 10 years. Pick five commodities, he said, and all will be cheaper and more plentiful in 10 years. After the time passed, Simon won the bet, but pessimists at the time said it was like the man who jumped off the Empire State Building and on passing the 10th floor exclaimed, “Everything OK so far.”

The fact is more people are living better, healthier and longer with most things cheaper all across the planet. This explains how the world population has grown from 1 billion in 1804 to nearly 7.3 billion today.

If people were not living healthier and longer with infant mortality plummeting, it would be impossible. The United Nations notes that poverty has declined more in the last 50 years than in the previous 500.

So if everything is getting better for our kids and us, why are there so many pessimists? Why the negativity?

For the simple reason we are inundated daily with bad news, “If it bleeds, it leads.” The 100,000 airplane flights that land safely each day are not news — but one crash is. As you might imagine, optimists build airplanes and pessimists the parachutes.

My mother once told me she thought the world was coming to an end with all the reports of earthquakes, hurricanes, and tornadoes, seemingly every day. I told her with modern technology a lot of similar bad news is just compressed into one news cycle and is no worse than before.  For instance, when Napoleon was defeated at Waterloo in 1815, it took months for the news to reach across America by ship and stage coach. Later, the news traveled in days or hours by transatlantic cable and telegraph when Krakatoa erupted in 1883; explaining the ash blackened sky all around the entire globe. With recent eruptions, we were able to see volcanologists killed by pyroclastic blasts as they happened.

When we are constantly bombarded during a 24-hour news cycle about murders, fires and terrorists, we deceive ourselves into believing such rare tragedies are on the rise. Particularly when we hear about them not as rare once-a-year events in one city, but compressed into our TV sets from hundreds of cities, it gives the impression of pervasive catastrophes and epidemics. The Ebola scare, for example, ran for weeks with only three victims and one death in the United States.

The fact is, things in general have never been better. Most people alive today have the highest standard of living in history. Housing, food, clothing, health care, sanitation, leisure time, are of higher quality and often cheaper than just a generation ago.

While the rich may be getting richer, so is everyone else. Think about air travel, like my first trip to Las Vegas in 1960 in a propeller plane versus a jet today, or your iPhone with over 1 million apps versus the rotary phone of my parents or the hand crank phone of my grandparents.

Think of the automobile you drive. Automobiles are the safest and most dependable ever, with over 17 million sold annually in the United States alone, with record sales in January, cheaper relative to income than ever before.

Think positive, be optimistic! Over the next 10 years you will be astounded by real estate prices doubling, stock market record highs, gold and silver prices exploding, and all of you will be living in million-dollar homes without ever having to move.
Schnaubelt, president of Citizens for Private Property Right

The Greedy Hand Of Government

The new capital gains tax and ‘the greedy hand of government’

“If you take a $1 bill and double it each year, after 20 years, it will compound to a total of $1 million dollars. But if you take the same $1 bill, double it each year and then subtract 35 percent in taxes, after 20 years it will have generated only about $24,000.” — Malcolm Forbes

In 1913 Uncle Sam collected only about $13 million in income taxes. That’s why they were call the “good old days.” Taxes, of course, have gone up considerably since 1913, and every April 15 is now known as the day the government says, “Stick ’em up.”

President Obama said in his State of Union Message that he wants to raise taxes, particularly capital gains taxes, through what Thomas Paine called “the greedy hand of government.”

In an interview with Charlie Gibson, President Obama said, “I look at raising the capital gains tax for purposes of fairness.” Gibson pointed out that when the capital gains tax was reduced under Presidents Bill Clinton and George W. Bush, the government took in more money from the tax. Nonetheless, the president maintains it not fair to have a lower tax rate for some, and proposed to raise it to nearly double the rate when he entered office.

What is not fair is any capital gains tax. It should be zero, as many economists advocate. Several countries have no capital gains tax, including Austria, Belgium, Germany, Greece, Luxembourg, Mexico, New Zealand, Portugal and Turkey. More than a dozen additional countries do not tax gains on stocks.

What’s truly not fair is the top 3 percent of income earners pay more personal income tax than the other 97 percent, according to a Wall Street Journal editorial.

From the founding of the country until 1921, the United States did not tax capital, with a brief exception during the Civil War. In Gray v. Darlington, the U.S. Supreme Court ruled that capital gains are not income, as did several subsequent rulings up until 1921.

Taxing both the income stream from a capital asset, and the value of the underlying asset, is taxing the same income twice. With the adoption of the 16th Amendment in 1913, “the greedy hand of government” defined capital gains as income. In 1921, in Merchants Loan and Trust v. Smietanka, the court agreed.

The eminent economist Ludwig von Mises said, “There are no means by which the general standard of living can be raised other than by accelerating the increase of capital as compared with population.”

It seems self-evident: Workers earn more when there is more capital (profits invested), which should be common sense. Workers with lots of machines, technology and equipment will produce more per hour than workers who don’t have access to capital.

Obviously, a man with a D8 tractor is more productive than a dozen men with shovels, a chainsaw than a handsaw, a spray gun than a paintbrush (all tools provided via profits, savings or investments).

My corporation bought a rental house 30 years ago for $135,000. It’s now worth $635,000, for a $500,000 capital gain. However, unless I can buy another similar house for $135,000, there is no gain, only a phantom profit.

If I sell and pay the capital gains tax of $140,000, it is a $140,000 tax on government-created inflation, inflation created through the Federal Reserve. If I sell, I’m worse off because I cannot buy a similar replacement rental house. My primary “benefit” is not profit, but the forced savings by owning the house for 30 years (while paying an income tax yearly on the rental income plus a property tax).

Multiply this by millions of taxpayers locked in and acknowledge the economy is stunted when there is less “capital compared with population” to invest in machines, technology, tools, factories and equipment (new or replacement), resulting in fewer jobs and lower wages than if there were no capital gains tax.

Government is not a “necessary evil,” as claimed by Thomas Paine. Government is indispensable for protection against foreign and domestic predators, protection of private property and to invoke a common system of justice — when government is properly limited in its ability to tax and regulate.

Capital gains taxes should be abolished if you want to raise real wages and grow the economy. If you want to cut off your nose to spite your face, redistribute wealth, stagnate the economy and have everyone poorer “in fairness,”  then you have the makings of a politician motivated by begrudgery, greed, revenge, envy and covetousness.

Ukraine, Russia and Putin An alternative View

Ukraine, Russia and Putin An alternative View by Fred Schnaubelt and Irina Nekolaevna Antonova SchnaubeltHelmut Kohl                                       Soviet Union agrees to a unified Germany if NATO limited

Imagine if China convinced Canada to form an economic and military pact with Mexico and moved troops along our borders and built a new naval base in Cuba?  How would we react? How did we respond in Grenada in 1983 where the U.S. claimed Cuba and the Soviet Union were building a military air base?  President Reagan sent in 7,000 troops.

The present Ukraine crisis is being blamed on Russian President Vladimir Putin invading Crimea in an attempt to restore the former Soviet empire. Speculation is Putin may not stop there but invade the rest of Ukraine, and then conduct a blitzkrieg through other eastern European countries.  The ouster of Ukrainian President Viktor Yanukovych earlier this year (February 2014) was simply a pretext for Putin to snatch the Crimea from Ukraine.

What’s wrong with this picture? What’s wrong is the United States and NATO are primarily responsible for what is happening in Ukraine.

John Mearsheimer in the current issue of Foreign Affairs writes, The genesis of the trouble is “NATO enlargement, the central part of a larger strategy to move Ukraine out of Russia’s orbit. At the same time, the EU (European Union) is expanding eastward and the West’s backing of the pro-democracy movement in Ukraine.” (Overlooked is Kiev, Ukraine is the Jamestown of Russia– where its empire began). Soviet and Russians leaders have repeatedly and vociferously opposed NATO enlargement.  For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president — was the final straw. He responded by capturing Crimea on the Black Sea fearing it might become a NATO naval base on Russia’s border.

Russia Today article (November 2013) sets the stage for the Russian perspective, “The US is using NATO as a Trojan horse in order to take over militarily and politically the whole of Eastern Europe, from the Baltic to the Black Sea, and this is an open provocation vis-à-vis Russia.”

NATO, originally comprised of 12 nations formed the North Atlantic Treaty Organization at the end of WWII.  Ten years after the fall of the Berlin Wall,  NATO expanded to include the Czech Republic, Hungary, and Poland then expanding further to include a total of 28 countries encircling western Russia.  Russia was too weak at the time to thwart NATO’s eastward movement.

During the Cold War, the West did not trust the Soviets, at best “Trust but Verify,” and the Soviets and later Russians have not trusted the U.S. and its NATO allies.   According to a 1990 German record of a conversation, which was only recently declassified, West German foreign minister Hans Genscher said: “We are aware that NATO membership for a unified Germany raises complicated questions. For us, however, one thing is certain: NATO will not expand to the east.” And because the conversion revolved mainly around East Germany, Genscher added explicitly: “As far as the non-expansion of NATO is concerned, this also applies in general.” 

This confirms what the US secretary of state James Baker said on Feb. 9, 1990 in the magnificent St. Catherine’s Hall at the Kremlin is beyond dispute, as reported in Der Spiegel. There would be, in Baker’s words,“no extension of NATO’s jurisdiction for forces of NATO one inch to the east,” provided the Soviets agreed to the NATO membership of a unified Germany. Moscow would think about it,” Gorbachev said, but added:“any extension of the zone of NATO is unacceptable.”

The USSR contended it agreed to pull troops out of East Germany in exchange for a promise that NATO, its mortal enemy, would not expand. Additionally, the Soviets would have four years to relocate their troops and West Germany would contribute 12 billion Deutsch Marks for housing for Soviet Troops returning home. The U.S. holds a different interpretation of this agreement. NATO, in 2008, began talking about admitting Georgia and Ukraine. France and Germany opposed the move for fear it would unduly antagonize Russia. In 2008, Georgia signaled it intended to join NATO.  Subsequently Putin sent 9,000 troops into Georgia declaring that admitting Georgia and Ukraine to NATO would represent a clear and present danger to Russia.

The EUROPEAN UNION, too, had been moving eastward. In May 2008, it unveiled its Eastern Partnership initiative, to forge closer ties with six countries including Ukraine into the EU economy. Not surprisingly, Russian leaders viewed the encroachment a hostile act. John Mearsheimer in Foreign Affairs“The West’s final tool for peeling Kiev away from Moscow has been its efforts to spread Western values and promote democracy in Ukraine and other post-Soviet states, a plan that often entails funding pro-Western individuals and organizations. Victoria Nuland, the U.S. assistant secretary of state, estimated in December 2013 that the United States had invested more than $5 billion since 1991 to help Ukraine achieve “the future it deserves.”

The West’s triple threats – NATO enlargement, EU expansion, and democracy promotion – added fuel to the kindling. The spark came in November 2013, when Yanukovych rejected a major economic deal he had been negotiating with the EU and decided to accept a $15 billion Russian counteroffer instead, setting off demonstrations with western fingerprints. Shortly after the February 22nd coup overthrowing Yanukovych, Putin deciding the time to act against Ukraine and the West had arrived ordered Russian forces to take the autonomous republic of Crimea from Ukraine, and soon after that, merged it into Russia.  A majority of the population, who are ethnic Russians, voted to go with Russia. Russia also had the enormous advantage of having thousands of “boots on the ground” stationed at its naval base at Sevastopol.

Putin’s actions should have been easy to predict. Ukraine is a  huge expanse of flat land that Napoleonic France, imperial Germany, and Nazi Germany all crossed to strike at the heart of Russia.  Ukraine serves as a buffer state of enormous strategic importance to Russia, real or imagined, makes no difference. No Russian leader could survive politically while letting the West set up a puppet government determined to integrate Ukraine into the West. A befuddled Secretary of State John Kerry’s commented,  “You just don’t in the twenty-first century behave in nineteenth-century fashion by invading another country on completely trumped-up pretext.” Kerry’s argument falls short when examined as Mearsheimer notes. “If Putin were committed to creating a greater Russia, signs of his intentions would almost certainly have arisen before the overthrow of Yanukovych on February 22nd. But there is virtually no evidence that he was bent on taking Crimea, much less any other territory in Ukraine, before that date. Even Western leaders who supported NATO expansion were not doing so out of a fear that Russia was about to use military force. Putin’s actions in Crimea took them by complete surprise and appear to have been a spontaneous reaction to Yanukovych’s ouster.”  Liberals recently have developed an almost utopian view of geopolitics, the can’t we all get along approach. Russia still holds the more traditional view of power, countries have neither permanent friends nor permanent enemies but permanent self-interests.

“War is merely the continuation of politics by other means.”  The misunderstandings over Ukraine can be tamped down. The United States and its allies should give up trying to convert Ukraine.  Instead, they should try to make it a neutral nation, between NATO and Russia. It should recognized that Ukraine is of critical importance to Russia, which can’t accept an anti-Russian regime there.  The Ukraine need not be pro-Russian or anti-NATO. On the contrary, the objective should be a neutral Ukraine, neither in the Russian nor the Western camp. NATO expanded in the past because it assumed it would never have to defend new members, but Russia’s recent flexing of muscles shows this to be a dangerous game that put Russia and the West on a irreconcilable collision course. On the other hand, writes Mearsheimer, “a neutral Ukraine, one that does not threaten Russia and allows the West to repair its relations with Moscow would be an approach where all sides would win.”

Fred Schnaubelt, former San Diego councilman. Dr. Irina Schnaubelt, retired Soviet & U.S. microbiologist lived in Russia for 36 years.  They were married in Moscow in 1987.