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Swamponomics: Exposing This Week’s Economic Fallacies – April 28

Exposing the supply of fallacies and satisfying the demand for logic.

Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.

Keeping Cool with the Kids

Senator Elizabeth Warren (D-MA) and her fourth-form chums think it would be quite corking if the rad students of today had their debts wiped out and the gnarly pupils of tomorrow got some free tuition. When the presidential candidate isn’t busy getting herself a beer or writing reviews for Game of Thrones, Warren is proposing multiple policies that can be condensed into two words: free stuff.

Writing in a Medium blog post, Warren promised to spend $1.25 trillion over 10 years to eliminate up to $50,000 in student debt for households with incomes under $100,000. She says this would benefit 45 million Americans and the plan would be paid for with her 2% annual wealth tax on $50 million and an additional 1% levy on anyone’s net worth exceeding $1 billion.

“It’s time to end that experiment, to clean up the mess it’s caused and to do better,” she wrote. “We can make big structural change and create new opportunities for all Americans.”

The two-term “Native American” senator also wants to allow states to make public colleges tuition-free, spend $100 billion on expanding Pell grants, and stop tax dollars from going to for-profit institutions.

Her proposal is likely to be popular with the hip kids of today. Who doesn’t want a free degree in lesbian dance theory or feminism in the age of deconstruction? While the cost of post-secondary education has skyrocketed over the last 20 years and student loan debt has topped $1 trillion, her suggestions are misguided. There are real solutions that do not include taxation and government intervention.

In fact, it was the federal government that caused this mess in the first place.

The main problem is the guaranteed federal student loan program. By guaranteeing these funds, it causes an artificial demand that ultimately gives universities and colleges carte blanche to charge sky-high tuition fees. Since these facilities realize that the government is forking over tens of thousands of dollars to each enrollee, they don’t have any reservations to charge whatever they feel like, even if it is more than what the market will bear. What do these institutions do with the money? Opulent campuses, soaring administrative and teacher salaries, and a war on free speech. Rather than trying to rein in costs, they just spend, unless they see declining enrollment like the University of Missouri or Evergreen College, which had no other choice but to cut costs and find efficiencies.

Surprisingly, former Vice President Joe Biden agreed with this analysis in 2013, calling it a “conundrum.”

What’s the solution? Abolish public subsidies. By doing this, prices would come crashing down because colleges would need to satisfy the genuine demands of students and parents and what they are willing to pay – no more degrees in dismantling white supremacy and no more courses in watching reality television.

There are other more modern-day measures that would suit today’s global economy, such as encouraging corporations to fund a student’s education, matching students with employers for on-the-job experience, private sponsorships for colleges (The Hewlett-Packard Wing of George Washington College, for example) and introducing more online-based teaching.

A Stiglitz for Facts

Disney heiress Abigail Disney is railing against the rich again, despite being a wealthy woman herself. Writing an op-ed in The Washington Post, she described CEO Bob Iger’s salary as “insane”:

“It’s time to call out Disney—and anyone else rich off their workers’ backs. I had to speak out about the naked indecency of chief executive Robert Iger’s pay. According to Equilar, Iger took home more than $65 million in 2018. That’s 1,424 times the median pay of a Disney worker. To put that gap in context, in 1978, the average CEO made about 30 times a typical worker’s salary. Since 1978, CEO pay has grown by 937 percent, while the pay of an average worker grew just 11.2 percent. This growth in inequality has affected every corner of American life.”

This led Democracy Now! to interview liberal economist Joseph Stiglitz, who made the odd claim that capitalism hasn’t been working for most people for the last four decades. He decried rising executive compensation, share buybacks, and monopoly power – no wonder progressives love him!

But there’s quite a lot to unravel here.

First, Disney complaining about Iger’s $65 million paycheck. Why hasn’t he earned it? As Liberty Nation reported, he has made Disney a fortune since becoming the CEO more than a decade ago, buying key properties, including Star Wars, 21st Century Fox assets, Pixar, and much more. The shareholders made a bet that Iger could deliver the goods and he did, compensating him $65 million to generate billions in profits.

Second, executive compensation is entirely overblown by the left. Progressives typically state that CEO pay to worker compensation is 300-1. This is only true if you concentrate on CEOs in Fortune 500 companies, but if you compare average CEO pay (those working in small- or medium-sized businesses) to their workers, it crashes to about 5-1.

Third, share buybacks are the new boogeymen for Democrats. But this tactic isn’t as nefarious as leftists portray it to be. A stock buyback is when a company essentially reinvests in itself, which occurs when the publicly-traded firm believes it has exhausted all growth and investment opportunities. Rather than having unused equity funding costing the organization money, the business will look at long-term possibilities to pad its bottom line.

Fourth, Stiglitz asserts that capitalism hasn’t worked for most people since the 1970s. Is that even remotely true? Ask yourself this question: If you were around 40 years ago, are you better off now or then? Today, the global poverty rate has dipped below 10%, Americans have more disposable incomes than ever before, and millions have a six-inch mobile device that makes phone calls, browses the internet, orders pizza, plays the radio, streams video, and handles any number of other tasks that that would have required multiple gadgets just 20 years ago. How could Stiglitz say with a straight face that most people haven’t benefited from capitalism since the days of former President Jimmy Carter and Carl Yastrzemski of the Boston Red Sox?

Zoom, Zoom

Zoom Video Communications (ZM), an enterprise videoconference software company, recently filed for an initial public offering (IPO). Compared to other IPOs of late, Zoom has performed modestly well, advancing 4% from its debut. But there is another Zoom that has zoomed by: Zoom Technologies (ZOOM), a telecommunications company and over-the-counter penny stock.

The unrelated firm saw its shares surge 56,000% in just a month, and 1,269,000% in three months. It went from barely above a cent to an all-time high of $5.76. So, if you placed a $100 bet on the company, you’d see an $84,000 profit. And good for you for having such great foresight!

So, what happened exactly?

ZOOM, when its stock was soaring

Well, the main contention is that investors – retail and professional – made a mistake and confused the two tickers. While this is a plausible and correct explanation, it still doesn’t provide the full story. This is what could have happened: artificial intelligence (AI) bots.

On one hand, traders mistakenly bought Zoom Technologies instead of Zoom Video. On the other, some investors may have noticed an increase in volume and the momentum in the share price, potentially deducing that people purchased the wrong stock. As more investors got in on the action, the AI bots noticed the trends and started lapping up scores of ZOOM shares, sending the share price higher. Then, when it got noticed by major investment houses and the mainstream press, they sold and made a handsome profit.

At the time of this writing, ZOOM is trading around a buck, down 150% from its record high. This should serve as a lesson that even the most under-the-radar stock could have a monumental day at any moment, so don’t feel discouraged if you bought shares in Acme International for $1.23, hoping it would soar to its previous all-time high of $123.23.

Conclusion

Free market capitalism is such a great system that you can rail against it and become rich and famous in the process. Many people have made a lucrative living, appeared on television, or been described as a brilliant person for claiming that capitalism has failed and that the only solution to ensure mankind is better off is to grow the state, curb excess, and give politicians more of your money. But, as one famous president said, “Government is not the solution to our problem, the government is the problem.” Life can’t be all that bad if you sell anti-capitalist books and documentaries for a profit, receive funding to publish anti-capitalist sentiment, and rise to prominence for running an anti-capitalist campaign. Capitalism: an economic philosophy that enriches the whiners, moaners, and complainers!

~

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