Thursday, July 09, 2015

Understanding Ownership

On a run around one of my favorite routes, I ended up listening to a podcast from Bernard Chapin.  Uncie Bern had wandered into the discussion of whether the Nazi's were indeed socialist (which by most mathematical, economic, and political measurements were).  While one would think with the full name "The National Socialist German Workers Party" would leave little doubt, Hitler was a such a bad man that the left desperately has (and still needs to) paint him as a right winger (while still have heart palpitations for Mao, Stalin, and Che).  This has resulted in a painfully childish debate of semantics about who owned what, were the means of production owned by the state, did the state tell the corporations what to do, were they "corporatist," blabbity blah blah freaking blah.

Alas, I believe it is high time to do away with semantics and discuss precisely what is "ownership" so that before we all get caught up in the minutiae and technicalities of ideologue-infested debate, we can let you, the individual, think for yourself as to whether or not the Nazi's were indeed socialist (not to mention, be able to identify who is and is not an advocate of socialism).

First, one must ask "why do we own any assets" in the first place?

Is it pride?  Is it power?  Is it consumption?

It can be all of those things, but we have to delineate between a consumable good/asset and an investable asset.

A consumable good (or asset) is precisely that.  It can be consumed. 

An apple.
A bottle of scotch.
A movie.
A video game.
A car.

All of these things, sometimes immediately, some times over the course of years, are inevitably used up or "consumed" by the "consumer" and no longer serve any purpose or value.  They feed a person, comfort a person, make life convenient for a person, but in the end they are consumed.

Contrast that with an investable asset, where that asset is not to be consumed (like a Milky Way bar) but rather employed in a process or business to generate INCOME aka PROFIT aka EARNINGS. 

The computer you use to run your company.
The factory used to build widgets.
Even the trucks (which can also be considered a consumable asset) is considered an investable asset as long as it is used in such a capacity.

These assets are used to generate further earnings by which you can live off of and thus are considered "investments."  Alas, "assets" in this particular economic sense of the word typically imply there is some income generating potential of those assets and are what are traditionally referred to by communists as the "means of production."

Now what the left and communists will do to "prove" the Nazi's were not socialist is point to the fact that under socialism it is the state the owns the means of production while under capitalism it is the private sector or individual who owns the means of production.  And since the Nazi state did NOT own Germany's corporations, but rather said corporations were still in private hands, the Nazi's=Capitalists=Ronald Reagan=White Males=Kill Them All.

However, like most arguments of the left, they are disingenuous, deceiving, and intellectually dishonest. 

The reason why is that while "officially" under Nazi Germany corporations were largely in private hands, the state still effectively told them what to do, what to produce, and how much of it.  So sure, the deed to the plant had "Hans Fricktenstein" on it, and the deed to the factory had "Heinrich Gorsternstoppen" on it, but it was only in name.  The Nazi state controlled it, not the individual "owner," rendering "official ownership" moot.

Of course, faux leftist intellectuals and libertarian conspiracy theorists will then pull out the term "corporatist." The leftists do this to throw you off track, while libertarian conspiracy theorists do this so they can use 50 cent words to fake intelligence.  But whatever name they call it, it's still the STATE that effectively controls and owns the factors of production.  Merely slapping "corporatist" on it does not change it's economic nature.

However, thinly veiled and politically-incentived semantics aside, there is a more compelling, fundamental economic reason that ultimately governs what precisely is "socialist" vs. what precisely is "capitalist."  And it is not whose name is officially on the deed, nor even who effectively "controls" the assets.

It's who owns the profits of these investable assets.

You see, the ONLY reason people go into business is because they want to make a profit.  It's very cute and funny how naive college students, as well as their older (yet pathetically not wiser) professor counterparts think "profit" is some how evil or unnecessary.  When in reality NOT ONE THING in ANY economy would ever have been produced without the prospect for profit.  You go to work because you intend to earn more than the gas and car maintenance you expend working there.  I write posts and books because I intend to make money on them.  And Warren Buffett gives up his money when buying companies not for S's and G's, but because he wants the profits of the companies he's buying.  Thus, the real reason for assets even to be considered "investments" or "means of production" (and thus, sough after) is because of the profits they MAY potentially generate.

Alas, ownership is not determined by the deed, nor even the dictates of what is to be produced by the state, but who receives the profits.

At first, leftists and other ignorants of society will rush to point out "who receives the profits."  The evil rich people.  The illuminati.  The bilderberg groups.  "Big Oil."  "Big Pharma."  But there is ONE entity that that is a bigger shareholder than all the interconnected, multinational corporations and hedge funds combined.

The state.

You see, with a 36% federal corporate tax rate, combined with a ever so roughly 4% state tax rate, the rough average corporate tax rate is 40%.  This means your state and federal government combined are the single largest shareholder of US corporations. 

They did nothing to earn that money. 
The states nor the federal government risked their own money in purchasing any investable asset.
Even Barack Obama didn't build that.

They merely through law declared that they are the default owner of 40% of all US corporations.

Throw in dividend taxes and the statutory rate is 50% (arguments of effective rate duly noted). 

Ergo, the economic REALITY is that the United States is not an "evil greedy capitalist" nation like the left would have you believe, but a half owned, state entity where the government is the defacto 50% owner of all US corporations.

Now, of course it is not only corporations and companies that produce all the economic production in the nation.  There are individuals, small businesses (who are not in the 50% tax range), and (as many leftists are no doubt spewing vehemently) just because the STATED tax rate is 50%, doesn't mean corporations pay that rate (the EFFECTIVE rate, sans dividends, is closer to 32%).

But we all know that the government taxes these entities as well.  We have sales tax, property tax, personal income tax, gas tax, nearly everything is taxed.  So it is ALL forms of profit that are taxed one way or another.

So how do we measure this, and thus define, whether a particular government or political party is "socialist" or not?

Government spending as a percent of GDP.

I've hit this one on the head before, but not from the angle that taxation is nothing more than a percent ownership in private ventures.  And while you may "own" your house, or may "own" your corporation, or may "own" your stocks, you only own the percentage that the government does not tax away.

What is that percentage in the US?

Well, it depends on the state, but on average 40%. 

When you combine state, federal, and local spending, the cumulative "state" is a default 40% shareholder in all American economic activity.  This is certainly not the totalitarian Soviet Union or today's North Korea, but it is also NOT the "evil, heartless, capitalist" nation the left successfully dupes the perennial idiots of our country into thinking it is paints it to be. 

The larger point is not that the US is "40%" socialist.  Nor that a "communism-socialism-capitalism-anarchy" spectrum more aptly describes today's economies (although it does).  The key is to understand that it is ownership of PROFITS that determines the true ownership of the assets.  And that any debate that ignores this should be relegated to the societal garbage bin where it belongs - academia.

Now, just ask yourself this question.

What does a 40% socialist state say about who owns you and your life?

That is for another post at another time.


Bernard Chapin said...

Good article dog!

Glen Filthie said...

A-ha!!! I see that a certain capitalist swine has not been reading the correct politically revised history books Captain! (I am partially to blame, I kept a few in the out house during the Great Toilet Paper Shortage of '06). Take him to The Cooler!!!!

I also see you are breaking one of your own rules by arguing with idiots. You and I disagree on religion and I regard this issue as a point in my favour. The point of religion used to be gubbermint. As democratic nations rose the churches became the conscience of the western world and basically served to keep stupid people (like our modern day leftists) in line. When you and your evil capitalist ilk allowed the left to do away with the church, they threw out the morals, ethics and common sense that went along with it. Hence, here we are today with sexually disturbed idiots swarming out of the closets and into the washrooms, classrooms and courtrooms - and legions of low IQ/low skill immigrants flooding across the border to reinforce the idiots of the left. Science and political ideologies don't do a thing to moderate and control stupid people...and a few actually thrive on them. The church, at least, will ask about the ethics of abortion, the ramifications of gay marriage, genetic engineering and stem cell research etc. Those are questions we all need to think about - or they are for anyone with a triple digit IQ.

Hitler was nothing unusual. The capacity to do what the Germans did is in all of us and the moslems will be the next to have a go at genocide - and they will be enabled and assisted in that enterprise by the political left just as Adolph Hitler was 70 years ago. One only needs to look at the rising tides of anti-Semitism across the left of the political spectrum for proof. Growing numbers of us are seeing that 'Lest We Forget' has been forgotten by people with the attention span of a gnat!

To misquote Bradbury: Brace yourselves, for something stupid this way comes.

Ras al Ghul said...

If you can't defend it, you don't own it

EGS said...

the gut punch of the reality I got from reading this has made me feel ill. I fully sympathize with the cash only transactions in my area.

leeholsen said...

Brilliant !

Never looked at it that way. So, if you're a company or person and the govt gets 40% of whatever you make you don't really own it imo. what married couple or business willingly gives up 40% to a third party who tells them what to do in many cases and doesnt call them at least a part owner, only the stupid imo.

the govt is a part owner in your business, career, house and now health.

Robert What? said...

Good article, Cap. According to this Mises article government spending in Germany during the Nazi years averaged 35%:

Another measure I think is individual liberty, particularly economic liberty: the more Socialist, the less the individual liberty. By those counts, both Nazi Germany and the US count as Socialist wet dreams.

sth_txs said...

I've tried to explain to idiot leftist or do I repeat myself that most Americans pay more in taxes than they do to have a place to live whether that is an apartment or a mortgage.

If you add up the tax burden before and after your check, it is quiet substantial even for those making $40k. And when I say add up, count SS, medicare, federal, state and then go home and pay gas tax, car registration, sales tax on water and electricity, fees/taxes on phone bill, sales taxes on food in some states, and too many others to list.

In fairness, those on the right are just as stupid. I have yet see any Republican majority actually cut taxes or abolish a law in any meaningful way.

Will Brown said...

It was quite common for the Nazi government to declare that ownership of a random business (or an entire industry) was restricted to Nazi Party members only. Since party members were willy-nilly part of the government, the Nazi government did in fact own "the means of production".

Heath J said...

Excellent article, sir.

To further prove your point, Hugo Junkers died under house arrest, after the Nazis seized his patents and factories. All we remember about him in general was the Stuka.

Matt said...

The issue with this analysis is that Communism was enemy #1 in Hitler's mind, something he made very clear on many occasions in Mein Kampf and in his infamous Commissar Order, which demanded that any Soviet political commissar who was captured on the Eastern front be summarily executed.

In addition, I wouldn't put a whole lot of stock in the name. I know, I know, "National Socialist." By that standard, North Korea (the "Democratic People's Republic of Korea") is currently a democracy.

FSK said...

Actually, a small business owner IS taxed the same (or higher) than the large corporation, because his earnings are ordinary income, instead of corporate tax+dividends. (One guy told me that the point is around $5M/year, where it pays to switch from an S-corp to a C-corp.)

And the large corporate gets a partial rebate on tax paid. Many large corporations get laws making it harder for the little guy to compete. For example, all the anti-Monsanto-GMOs-must-be-tested laws are great for Monsanto! Why? Monstanto has the deep pockets to comply with the regulations, but the little agritech startup doesn't have the budget.

Also, large corporations get easier access to capital via the bond market, subsidized by the Federal Reserve.

Anonymous said...

Isn't what you're describing (asset in private name, but profits and directing are Gooberment) known as "fascism"? As in, the form of dictatorship during WWII Italy under Mussolini?

B Woodman

The Question said...

It's ironic that the Left loves to talk about how the states and the federal government should tax this and that in order to discourage it (alcohol, tobacco, guns, etc.) but then think an income tax won't have any negative effect on productivity.

Anonymous said...

Operationally property ownership bestows the right of exclusion. If you can't keep the state off your property then you don't really own it. Same thing goes for free association. Traditionally people who couldn't exercise free association were called slaves. Most human resources today are little more than comfortable slaves.

Bill Buppert said...

Splendid analysis and may I suggest that the notions of slavery are tested here because ultimately there is zero individual protection for personal assets assured by the government combine in DC.

I would also suggest that the tax rate in America is effectively beyond 100% now.

Per GDP, that is a deceptive figure to use.


Until World War II and the postwar years, when the federal bureaucracy institutionalized the government’s preferred method for calculating national income, economists offered sound arguments for excluding government spending from estimates of gross domestic product. Using their general approach reveals that the private economy’s performance for the past thirteen years has been only somewhat better than complete stagnation.

Liberty4Ever said...

Socialism has been sold to Americans based on the lie that the US is a capitalist country and capitalism is the root of all evil. I'm always very careful to define my terms when talking to people. It can even be amusing. Ask a liberal who is advocating for more taxation and more government control to define capitalism, a term they've been railing over in spit flecked invective, and they'll sputter and start making up nonsense. "It's when greedy people profit by exploiting others." Are public schools teaching Mein Kampf, The Communist Manifesto and Das Kapital? I tell them that capitalism is the voluntary exchange of goods and/or services that can only occur when both parties benefit. I try to disabuse them of the notion that the US is anything close to a capitalist country. It's now much more socialist than capitalist.

The ownership by the United States government is far worse than depicted in this excellent article. In addition to the 40% ownership of American companies through taxes, taken right off the top, there are numerous other takings. Consider the employees. When a company pays employees, the employees pay employment taxes. The employer matches many of those taxes. I'm self employed, and it's a gut punch to pay both shares. Then an employee spends those wages. Other than prostitution and illicit drugs, any purchase requires more taxes paid to the government. There are taxes on cars, gasoline, food, insurance, hotels... you name it, and it's taxed. You probably don't even see many of them. There are excise taxes on tires, for example. All of your utilities, cable TV, internet, cell phones... all are heavily taxed by federal, state and local government.

But even that doesn't tell the entire story of how our government owns us. We need to consider the total cumulative taxes in the goods and services we purchase. State sales taxes are small, by comparison. While it's true that items purchased for manufacturing are exempt from state sales tax, as that tax is only collected at the final retail transaction, there are numerous embedded taxes throughout the supply chain, and the end consumer ultimately pays them all... with her AFTER TAX income that's effectively taxed yet again! Every company throughout the supply chain pays taxes, generally to local, state and federal governments. Those taxes are an unavoidable business expense that is passed on in the cost of the materials being sold to the next company in the supply chain. Most people would be shocked to learn how many of these transactions are required to supply even the simplest product. Read the essay I, Pencil by Leonard Read to gain an understanding and appreciation of the complexities of trade, then consider that each of these sequential transactions includes a 32% corporate tax. Just as persistent pesticides concentrate upward through the food chain, taxes concentrate upward through the supply chain. When the end consumer buys anything, 45% to 55% of the cost paid by the consumer is embedded taxes. And once again, the consumer already paid income taxes on their wages, so 50% of the after tax income they spend on goods and services goes to pay more taxes. The taxes embedded in each item far exceed any pre-tax corporate profits that the socialists loudly decry as evil.