The Case Against The National Weather Service

With Hurricane Isaac about to hit the Gulf of Mexico I was doing some research and realized like with many government bureaucracies how inefficient the government run weather service is. When I was younger I use to be into meteorology because he dealt with a lot of math and science (which I was pretty good at). Back in the 1990’s I use to have a hurricane tracker in my room where you could track a hurricane using magnetic dots which seemed pretty cool at the time. These days everything can be easily seen on the computer and in real time.

What opened my eyes about the National Weather Service was this article. The article makes pretty good arguments for why we shouldn’t have the National Weather Service. The service relied on bad information which led to the death of 22 people in Nashville because of major flooding. Even when Hurricane Katrina hit the National Weather Service was half a day behind the for profit service (AccuWeather). What is interesting is that the National Weather Service provides updates a few times a day while AccuWeather has hour by hour updates.  Not only is the National Weather Service behind they also have an error rate that is 20% greater than the greedy for-profit companies. The National Weather Service also did the worst when compared to other sources of weather information.

According to this report from the NOAA the National Weather Service is asking for $5.1 billion for 2013 which is a $154 million increase from 2012. Good grief with $5.1 billion you would think that the National Weather Service was somehow improving the weather. If I were in Congress I would propose a budget amendment. The budget amendment would read that for every year that the National Weather Service did worse than for-profit weather service companies the National Weather Service budget would be cut 20%.

What is really interesting is why we need more money for the National Weather Service when we live in a generation where Twitter, Facebook, and cell phones are probably the most effective and quickest forms of communication for severe weather.  George Mason University economics professor Dr. Don Boudreaux as usually writes elegantly in the WSJ last year that weather related fatalities have drastically decreased over the past 70 years.  Dr. Boudreaux even gets serious by betting anyone $10,000 that the average number of Americans killed by tornadoes, floods, and hurricanes will continue to fall over the next 20 years.  I have always said that betting limits ignorance.

The National Weather Service is not needed when we have so many private companies that already do the exact same thing with not only better information but don’t use taxpayer money. The technology will continue to improve and the warning systems will also continue to improve which will save lives. Free markets can not only make products at higher quality with lower prices but in the case of the weather service actually save lives, provide better information, while not using taxpayer money. Too bad the forecast for the National Weather Service looks sunny with high government funding and a low of taxpayer satisfaction. 

Down With Evil Corporation Fools

Buffett Tax

This week President Obama announced the Buffet Tax. The Buffet Tax would tax people making people who earn more than $1 million. In Buffett’s article in the New York Times entitled “Stop Coddling the Super Rich” Buffett makes the case that he pays lower taxes than his secretary. This of course is true since Warren Buffett’s income is taxed at a much lower since Buffett earns all his income on capital gains which is much lower than ordinary income (income from working). However, what I find interesting is that Buffett leaves out the taxes that his company pays in order for him to receive that income. Buffett runs Berkshire Hathaway which is a large conglomerate of companies. When Berkshire Hathaway earns income that income is taxed at a corporate rate. In 2010, Berkshire Hathaway paid 29.4% in corporate income taxes. Generally companies pay 35% in taxes but companies can lower this rate through their tax department. Berkshire Hathaway then passes their income to shareholders which Warren Buffett is. The income is first taxed at the corporate rate then Warren Buffett pays individual taxes. So in essence this income is taxed twice. Warren Buffett claims his income tax rate is 17.4%. However, the true tax rate Warren Buffett pays is 46.8%. People don’t really look at the tax rate corporations pay because people assume corporations are paying the taxes not people. People pay taxes not corporations. If corporations pay taxes its less money they have to operate which lowers their return which lowers the return of millions of shareholders. If Warren Buffett really is claiming his tax rate is 17.4% then he is essentially saying that Berkshire Hathaway pays no income taxes. Clearly, this is nonsense. Buffett would have more money if his company didn’t pay taxes. It is frequently brought up that although corporations are in a 35% bracket they don’t really pay it. This point is valid although I would point out lowering the tax a company pays comes at a cost. Hiring accountants and creating tax departments are not cheap. This cost is never talked about though. A company can’t magically lower their taxes without a cost. It would be interesting to see someone study the cost of taxes if you included how much time, energy, and money it took for corporations to lower their tax rate.

I myself am a fan of a progressive flat tax. This would free up corporate accountants and individuals from calculating their tax rate. Tax revenue would no doubt increase because it would be very hard if not impossible to shelter income if people paid one flat rate. Right now there are many legal ways to reduce taxes although billions of revenue is never collected because the tax system is so complex that very few people even understand it. The only problem I worry about is that if we raised more revenue it would lead politicians to want to spend more. It would be as if politicians went to a buffet and realized there was even more food than they thought.

I myself am a fan of Warren Buffett when it comes to his investing advice. However, his political views leave much to be desired. If Buffett really felt he was paying to little in taxes he could always voluntarily pay more. No one is stopping him from giving more money to the government. His actions show he is okay with paying the existing tax or else he would voluntary give more. You can’t say you are for raising taxes if you comply to pay lower rates than you otherwise would.

War on Poverty: Fail

Interesting chart from Dan Mitchell showing that poverty was already decreasing before the "War on Poverty" was declared by LBJ.

We Don't Have A Spending Problem, We Don't Have Enough Taxpayers

This sums everything up so beautifully...(H/T Mark Perry)

S&P Downgrade: Who Is to Blame?

With Standard and Poor’s (S&P) downgrading the United States debt there has been a lot of blame as to who is at fault. The S&P 500 reacted to the news by dropping 6.66% on Monday. Today the market was up almost 5%. David Axelrod senior advisor to President Barack Obama said that the downgrade was the credit downgrade was a “tea party downgrade”. Michael Moore wanted to arrest S&P officials (which is what Italy tried to do when S&P downgraded them only Italy wanted documents as well). Rick Santelli the man I would credit most with creating the tea party said that if it weren’t for the tea party the U.S. would be BBB.

Let’s sort out some facts first. Standard and Poor’s is in the business of reporting the credit rating of companies and sovereign nations. Moody’s and Fitch which are two other credit rating agencies kept their AAA credit rating for the United States. Standard and Poor’s did not err in their decision. In 2010, the United States took in $2.38 trillion. The very same year the United States spent $3.55 trillion. So in essence we are spending $1.17 trillion more than we take in yet we have the highest possible credit rating. If individuals overspent this much they wouldn’t even be credit worthy. Not only are we spending more than we are taking in but we have more than $14 trillion in debt. With all these facts the United States should have perhaps even a lower credit rating then S&P gave us.

Another interesting idea is why people are blaming credit rating agencies for the downgrade when it is really the fault of the people for electing people that take money from one person and promise it to someone else. The United States got the downgrade because of political instability and unclear and murky recommendations from the recent legislation. It would be as if a person called someone overweight (when they are) and the overweight person said, “I am not overweight you just don’t know what overweight is”. The parallel is yesterday when the President claimed at a press conference the other day that we truly are AAA even though we are told that is not true. People seem to blame the credit rating agencies for the downgrade and the 2008 financial crisis. In the 2008, financial crisis people were claiming S&P was too loose with its credit rating agencies. Now they claim people that S&P is being too harsh. I think the credit rating agencies realized after 2008 they had to make their criteria more stringent, but even with that said the United States should have been downgraded.

George Soros-Now A Family Office

Recently, George Soros told investors of his hedge fund that he is returning around $1 billion and turning $24.5 billion into a family office. One of the main reasons Soros is turning his family worth into a family office is because hedge funds will now be regulated under the Dodd-Frank financial reform. The regulation forces hedge funds to register with the SEC by March of 2012. Compliance is a subject everyone in the financial industry knows about. If anything I would argue the financial services is one of the heaviest regulated industries. The argument for Soros going with becoming family office is family offices don’t have to register with the SEC which is somewhat weird because of the way family offices are run. Family offices are in essence financial concierge for family with above $100 million. The costs to run a family office can run around 3% of net worth or $3 million per year. Family offices are no picnic. People who have earned amassed sums of wealth are usually not the easiest people to work with. My theory on why these people are not easy to work with is because the people that have earned a lot of money have done so by usually having high standards, attention to detail, and hard work. These people couldn’t get rich by not caring (unless they inherited the money).

Usually they are created once people realize they have a lot of money and have a lot to manage. The family office pays all the credit card bills, manages investments, teaches the family about philanthropy, and even plans travel arrangements. According to a Wharton Study as of 2008 there were only 1,000 family offices. Nearly half of these family offices had over $1 billion.

What is strange however is why family offices would be exempt from registering with the SEC? I would imagine family offices have access to personal of funds of people with loads of money. This could give way to serious fraud or embezzlement on the advisors part. Maybe the SEC thinks that well these people have enough money so we shouldn’t really worry about them.

What I find the most interesting is that George Soros who talked about how he wanted regulations put on banks and the financial sector is now trying to dodge those very same regulations he was in favor of. This reminds me of people who are in favor of higher taxes yet never voluntary pay higher taxes. People can always voluntary pay the Clinton tax rates if they want to or send their money to IRS. It is interesting how what people say and what they do or completely different things.