Watching From Afar

CME Trial Offers Insight Into Networks

I am watching the CME trial from afar. I don’t own seats anymore, selling my last one in 2012. I needed the money and saw them dropping in price like a rock. I am not a member of the class. I spent almost my entire career at the exchange, and was on the board and was one of the people who pushed for, and voted for, demutualization.

There has been testimony and ideas floated in the press that the members are very wealthy. First, that doesn’t matter. Second, most members had to sell both their membership and stock because they needed the money. When trading went electronic, 99.9% of floor traders couldn’t make the jump profitably. It was all they had and they needed to sell those assets to survive.

I was one of those people. I had to sell a large chunk of stock in 2003 in order to survive when the Eurodollars went electronic. I didn’t have any income from 2009 until 2017 and lived off stock and savings. Fortunately for me, I redeployed a lot of the capital into startup companies, and I was a very good startup investor.

Many of my peers didn’t have that happen. The ledger of divorces, alcohol and drug problems, suicides, and other life-threatening problems is long. Sometimes when traders see each other, they will say, “I don’t want to hear any bad stories, just good ones.”

If you aren’t familiar with the case, the class action is suing CME Group over “core rights”. What were the core rights of the members prior to demutualization, and what were they after? In the demutualization documents both written and verbally, the CME Board said members would retain core rights.

But what are they? Hence the lawsuit.

I truly wish we had a press corps up to the task of reporting on the case. We don’t. Not only do they not understand the way the exchange worked but they truly don’t understand how businesses work. Instead, they are note takers and repeat talking points.

I have also said I favored a settlement because both sides risk too much in going to a jury. To be honest, the former members risk more. If you sit on the CME corporate side, you assess the damages. It’s an $80B corporation with growing top-line revenue and roughly 60% or more of the top line floats to the bottom line. It has a regulatory moat that keeps it relatively safe from competitors. Any judgment against the exchange is likely to be at a maximum, $3B-$5B. For sure, there will be an appeal, and any settlement after an adverse verdict will be on the low end of that estimate.

On the other side, if the members lose, they lose it all. They can appeal, but the appeal will be tough, and they will have to find a law firm to take it on a contingency basis, cutting any amount they receive further.

There is a pack of people on social media who never traded on the floor that are active in markets today, who wonder what it was like, and love to hear stories about the floor. That’s sort of what this post will be about, not the case. However, if you understand what I write, it will give you insight into how the case happened and how it might progress.

The CME case offers some outstanding business insight into how networks work. I think understanding how they work can help your career.

Networks can be open and closed. Neither is better than the other, though our confirmation bias prefers open because it sounds better. They are usually structured the way they are because it is the best way for the business to attack the market.

Goldman Sachs and investment banks operate like open networks. Food companies operate using closed networks. Goldman benefits from an open network because it gets deal flow and opportunities from being open. Food companies benefit from closed networks because they want to control variance on production since a slip-up could cost them in a big way.

Closed networks usually have a feature of one “star” that everyone knows. In the case of Apple, it was Steve Jobs. When he died, the network reconstituted itself, and now it is Tim Cook. You don’t know other employees, and they aren’t in the news.

There were two broad networks in the exchange. The first was the corpus. It was the exchange itself. There were employees who were “corporate”. It was overseen by a President, and run by the CME Board, who were members. The members were powerful, and the President worked for them.

One phenomenon of networks is that when they break up, they will reconstitute themselves in a similar way after restructuring. A CEO leaves a company that had a closed network, and the existing network might break up. Other execs might leave, or the company might restructure. When the new network comes together, the probability of it being open is very small.

The “exchange” had a closed network. This was historical. You can read about Leo Melamed and the “Young Turks” who took over the exchange in the early 1960s. But, Leo displaced a closed network and reinstituted a closed network he ran to govern the exchange. Leo’s network persisted until demutualization. Only people Leo trusted became a part of that network, like Jack Sandner.

Jack thrived in the closed network, and even after he and Leo broke up, he remained because he had brought in his own people to work inside the closed network of the exchange. When the exchange went through a lot of political strife during the 1990s, it was basically “Jack people” vs “Leo people” at the exchange level and floor level.

Having a closed network benefited the exchange. It was in the money-moving and transparent market business that a high degree of trust was needed in order to sustain the business. The closed network helped it work closely with regulators and other large institutional entities. One point of contact, clarity on how decisions were made, with clear responsibility.

The trading floor was always described as an insular club by the press. But it was an open network. The closed network of the exchange put in place clear rites of passage for someone to enter the open network.

Hence, once you were in the open network of the trading floor, there were clear rules delineated in rule books and by culture. This is where there is some confusion that caused the lawsuit.

On the floor, “your word was your bond”. Traders had too much on the line, and the floor wouldn’t have worked if that culture didn’t exist. If every time I traded with you, I had a problem, what happened? The person who didn’t live up to their word was run out of the pit by the entire population. Do it in another pit, that person would find themself running off the floor. They wouldn’t get trades.

The floor was populated by people from all over the world. This was especially true among locals who traded their own money. Brokers who handled customer orders were more homogeneous. Families, of course, brought their kin down, and you’d see brothers, sisters, cousins, uncles, sons, daughters, nieces, and nephews. That led to the idea that the floor was closed, but it wasn’t because there were clear rites of passage established by the exchange. Go through them, and you have your stamp of approval to enter the network.

The floor was a human place. Each and every different pit had its own network, with its own culture. It was hard to enter a pit, leading people to think it was closed. However, it was generally possible, and if you were a good trader, you’d survive and become a part of the network.

The floor was open because it was about the best bid or offer. It was about the person willing to assume risk. It was about competition. Heated competition made the best markets, and advantaged customers, increasing the amount of order flow and business. That created more opportunity, and lather, rinse, repeat.

Because the exchange board was elected by peers, and made up primarily of peers, the membership implicitly trusted the board. When demutualization happened, if a board member said something, their word was their bond, and they were trusted.

But, as we know, words are words. Interpretation of those words can be wildly different.

For example, I wrongly assumed that with electronic trading, the order flow allocation would be “fairer”. In pits, if you stood next to a large order filler, you were able to get more opportunities to trade. On the screen, where you stood didn’t matter.

In practice, what CME did was sell out the pit space to entities that put servers next to the order flow in a data center.

Is that fair? It all depends on your perspective. From my perspective, it certainly wasn’t. I went from making a lot of money to losing a lot of money. What does the market think? By any measure, the “market” thinks it is fairer since volume has exploded.

I always assumed the board members would turn over. I assumed that the carve out for the B share board members would be taken by market participants who truly understood electronic trading, or options, or untaken opportunities that the exchange should pursue. Innovation in the closed network of the exchange generally didn’t germinate in the corporate. Innovation happened on the open network of the floor and flowed into the corporate world to be reformulated with member oversight so it could be digested by regulators and institutions. That hasn’t happened.

If you look at some of board members (not the B’s since they actually stand for a competitive election), there have been some who have been there for decades. They have no expertise, but are there because they are “yes men” or for some other aspect, like diversity or something like that. Some don’t even have expertise in how to manage a global company or in legislative matters. They aren’t experts in any part of the business or CPAs for an audit committee. They are puppets, but excellent political animals. Recall how NASDAQ tried to tell its listed companies who they should have on their boards and the makeup of them. CME isn’t immune to that. These “yes men” are insulators, not accretive to the advantage and operation of the exchange.

Because I have been gone for so long, it is impossible for me to talk about the culture of the exchange as it exists today. However, if Professor Ron Burt’s lessons are correct, the closed network that historically existed continues to persist today.

One way to see if that is correct, ask how many names from the exchange are in the news. Do you know any other names other than one?

Again, that’s not a “bad” thing or “good” thing. It is a function of how the exchange works to propel its business forward. It is in the money moving, transparent market making, and risk transfer business. It has to have trust to operate. It has to handle and negotiate with large government forces both nationally and internationally, along with global and national private institutions in a competitive marketplace. A closed network is probably still the best way to manage that.

Should We Eliminate the IRS?

Feedback on Taxes

Quantus Insights recently ran a poll on American taxation. Thought I would share it with you. Here are some high points.

31% of Democrats strongly opposed the idea of eliminating the income tax and the IRS when you just asked the question, “Should we eliminate income tax and the IRS?”

If you ask a typical Republican voter, it’s almost unanimous that they want to eliminate the current tax system. Even if Elon starts a viable third party, no doubt they will favor eliminating income taxes. Libertarians are generally against taxes.

The younger generation that is now in their 30s/40s is entering the prime time of their careers. They have equity in companies. They might be partners, or working to become partners in something. They are moving up in corporations and adding corporate responsibility, making more money, and receiving equity options.

Suppose you work for a startup and receive equity. If you sell it, you pay ordinary state income tax on the sale, plus long-term capital gains. Because of other penalties put in place during the Carter administration, things like the alternative minimum tax will move you to a higher tax bracket. I know entrepreneurs from California who exited companies and paid 60% of the gain in income tax to the Feds and State. That’s horrible and unjust, given the risks they took starting or working for a startup company. There is no guarantee any startup will work. In fact, most fail.

The younger generations also see their parents getting older, and they are envisioning inheriting quite a bit of money. In the next twenty years, we will see the largest transfer of wealth in human history from one generation to the next. Why do we tax wealth and inheritance? The very wealthy families hire attorneys and tax lawyers and avoid it. The very very wealthy, call them the “billionaire class”, set up elaborate tax schemes and house money in places like South Dakota and the Bahamas to avoid wealth/inheritance taxes.

After explaining the benefits and proposing the idea of taking home 100% of your paycheck by replacing our current tax system, support for getting rid of the income tax, payroll tax, corporate taxes, capital gains tax, and gift and inheritance tax exploded off the charts. This is especially interesting when you look at political affiliation. A majority of all voters support the idea, including Democrats (52%) and Independents (51%).

The younger generation showed greater awareness than expected. 73% of those under 45 support the idea of eliminating the income tax and replacing it with a national sales tax. The younger voter population is ready for serious tax reform. If you are older than age 44, it’s time to get on board.

Fair Tax is a consumption tax that scraps the IRS and our existing tax system. Here is who has heard of it and their age ranges.

It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. A flat tax is exactly that. We must let Congress and the President know that the best way to replace the income tax and the IRS is with a consumption tax.

A consumption tax is a grave threat to the Ruling Elites and Deep State. It is a nuclear bomb on the existing bureaucratic system. It will strip them of their power and their ability to control us through the tax scheme. The opposition to changing from the existing system to a consumption tax will be fierce and unrelenting. The people who value government power and centralization need to have taxes in order to exert power over citizens. Just try to stop paying taxes and see what happens to you. Don’t think for an instant that the Elites and Deep Staters won’t use half-truths, deception, and downright lies in their desperate attempt to hang on to their power. Just see how hard it is to cut $9B from the federal budget today! Imagine redoing the tax system so it is truly fair and rewards innovation, work, and building wealth.

Academics support the idea.

What's the solution? Well, duh. Tax consumption, not income or wealth. Get the rich down at the Porsche dealer. Leave alone any money reinvested in a company that is employing people and producing products. Now we can do it. And we can then throw out the income tax, corporate tax, and estate tax.

Income is really meaningless. You earn a lot of income in your middle years, but little early and late. The year you sell a house, you're a millionaire, but then back to low income the rest of the time. Yet our government hands out more and more benefits based on income as if it were an immutable characteristic. It is not. Consumption is a lot more meaningful!

We always hear about the rich paying their fair share. For the complainers like Elizabeth Warren, the rich never do pay their fair share. She and others like her have been shouting this phrase for at least a generation. We have the answer for them. The rich will pay their fair share with one simple consumption tax.

The best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well, so no future administration can ever shackle the American people with an income tax again.

You can do the math yourself with your own budget. If you make more than $60,000, you get taxed on every dollar after that number. The $60,000 is the prebate. People who earn that income or less pay no tax. Figure an 18% consumption tax on what you spend. This isn’t income, it’s consumption. There is also no tax on used goods because they have already been taxed. Consumption taxes avoid double and triple taxation. The consumption tax spurs a green and recycling economy. It also taxes the existing underground black market, the cash market, and illicit activities since it is a sales tax, not an income tax.

Study after study on income tax and what people pay winds up at Hauser’s Rate. That’s 18%. It sounds like a lot until you figure out how much of your income is already taxed. Remember, you get to eliminate payroll taxes along with income taxes, capital gains taxes, taxes on interest, dividend taxes, and all other federal taxes you pay.

People are moving to states where there is no income tax, and the state budget is based on a consumption tax. Florida and other states are looking to go further and get rid of property taxes, too! They are fleeing states with high income and high other taxes. It’s clear the sentiment is there.

Feel free to share this post with your friends.

This Entire Piece Is Wrong on Trade

When "Buy American" or Populism Goes Too Far

I found this article linked at Ace of Spades. I generally like the snark at Ace of Spades. They also can be pretty good at rants, and at connecting dots. It’s a good place to mine a lot of articles on the news of the day. Ace has linked to my blog on occasion.

Buck Throckmartin writes there, and he and I amicably disagree about a couple of things, but he comments here occasionally.

The article talks about the Faustian bargain America made on free trade. The problem is that it is written by an attorney, not an economist or a businessperson. Attorneys know how to argue and build arguments to support their case. The supporting arguments in this case are true, but are not correlated very much to what free trade is. Hence, the Faustian bargain sounds intelligent, but it is incorrect.

For those that don’t know, Faust bargained his soul with Satan and lost.

Trump rails against free trade, and populists who follow Trump rail against it. That has paved the way for tariff policy. Yesterday, the dollar volume the US has collected on tariffs since Trump instituted them was trumpeted. To be clear, there were tariffs being charged by the US prior to Trump taking office, so the number is probably inflated.

I am a huge fan of Treasury Secretary Scott Bessent. He is the best Treasury Secretary we have had since Bob Rubin. Bessent was one of the best macrotraders in the entire world and truly understands markets, flows, and the underlying plumbing that underpins the entire system. You couldn’t ask for a more qualified person to take the helm at Treasury.

I generally like Trump too, but he has excesses. Tariffs can go too far. They are not a panacea. What they are is a negotiating ploy. Ideally, there would be no tariffs on any goods or services by any country. In reality, that’s not true, so games are played.

There are strategic reasons, especially when it comes to defense, not to have free trade. Why? What’s the opportunity cost?

In order for you and I to see eye to eye, we have to agree on a few principles. The first is that unfettered free trade is generally a very good thing to have in our lives. It lifts all boats.

Why?

Because we all have limited resources. Because of that, we have to make choices. We could produce everything we needed to sustain life inside the US, but it would be prohibitively expensive to do so. Not because of regulations, laws, and all the artificial constructs, but because we have limited resources. There is only so much labor. There is only so much material.

Hence, it is better for us to trade with international partners and reallocate our resources to something else that is of higher value.

You see the same in your life. You could make all your clothes and produce all your food yourself. But, it’s better to trade currency for those things so you can do something else that is more high value.

Free trade also spurs innovation. Because we have trade, an innovator has access to all kinds of materials and knowledge they wouldn’t have had access to, and it allows them to build stuff to solve our problems.

I also think there are limits to free trade. When it comes to the security and defense of the country, the opportunity cost for free trade is higher than producing the same good/service at home.

The problem is we can’t see into the future. Often, items that will be used in the defense of our country start out as a game. Drones are a great example. It is impossible to produce a drone from start to finish in the US using only US materials and labor.

The other facet about trade is that many industries have supply chains that are very hard to move once established. Once established, human labor attains a learning curve effect, and there is a lot of indigenous knowledge around the supply and manufacturing of the product that is hard to replicate or move.

We are also discovering that the pairing of software and hardware inside a good has network effects. Tesla is a good example of that, but there are others, like drones or medical equipment. Hence, having that sort of manufacturing inside the US is a good idea.

The problem is, humans have to forecast much of this, and we are imperfect. Humans actually do a pretty poor job of looking into the future and seeing it perfectly, or even close to perfectly.

In today’s world, everything is being lumped into black or white. There is no nuance. It’s either bad or good. Instead of being objective, the world has become extremely subjective.

If we don’t agree there, stop reading and go on to something else.

Economist Thomas Sowell summed up the above perfectly in two ways. First, the study of economics is not about money or supply and demand; it’s about trade-offs and opportunity costs of those trade-offs. Second, when you take pictures with a camera lens, there are constraints that you have to handle when you use that lens. Using that lens should teach you about trade-offs and opportunity costs.

The article I linked to spends a lot of time talking about the trade deficit. The trade deficit is one of the dumbest economic numbers. Why? Because it forces the assumption that trade is a zero-sum game, and if you are in deficit, something should be done to make it equal. The trade deficit ignores opportunity costs and the reallocation of resources into higher value production.

Trade is not a zero-sum game. Not in the least.

The article says that the US pays for the deficit by selling debt and by selling US real estate. That is so wrongheaded, I do not know where to start.

Other countries have purchased real estate here, not because of free trade. They purchased it for strategic reasons, or they think they can get a higher return on investment by buying US real estate than allocating the assets used to purchase the US real estate somewhere else.

I am uncomfortable having China own a bunch of real estate next to military bases. China didn’t purchase that real estate because of any trade surplus with the US. I think it is a good idea to limit Chinese purchases of US real estate, or any foreign country.

But, realize that policy has an opportunity cost.

Limiting the number of buyers will decrease the price because demand will be lowered.

US debt is another issue. When we trade with another country, often that country purchases U.S. Treasury notes because they are trading with us using US currency. Much of the world’s trade is done with the US dollar, even when the US isn’t involved in the transaction. That’s great for the value of the US dollar.

Having other countries in the market to purchase our debt because of free trade lowers the costs to US taxpayers to finance that debt. Without free trade, the interest rate charged on US debt would be higher than it is already.

The author further cites, incorrectly, I might add, that it is a terrible thing for foreigners to own equity in US companies. What’s the opportunity cost? Decreased value of the company. That means decreased pay for employees of that company. Decreased opportunities for the growth of that company. He’s just wrong, and his clumsy assertion shows a clear misunderstanding of how a company operates and how markets operate.

The massive theft of intellectual property from the US to other countries is not because of free trade and foreign ownership of US equities. It’s because of ethics. In my opinion, the Chinese and other communist countries are highly unethical. They cheat. They steal. They lie. But, I bet the Chinese don’t think they are unethical at all.

What about the EU? The EU has all kinds of protectionist policies that go above and beyond tariffs that stop US companies from competing. So does Canada.

Is the US the only ethical country on the globe? Certainly not.

Our enemies or potential enemies have stolen intellectual property from us for decades.

For sure, the Chinese are stealing. So are other countries. The Chinese are nasty about it and erect trade barriers so US companies cannot compete. There are things that the US decided not to produce inside our country that are produced in China that probably should be produced here, because now we see the opportunity costs of not doing that are higher than the threats that come with not being able to produce.

Erecting a total trade barrier with China would have a greater opportunity cost to the US than having trade. That doesn’t mean free trade on everything. Does it matter if your shoes and clothing are made in China? Probably not. But it might matter where electronics for defense products are made.

Stealing, cheating, and lying are all opportunity costs and are hard to calculate. How much of it would you be willing to tolerate if you could get a better return on assets by making something else? Which goods or services would you put a barrier around?

Putting limits on holdings is putting a price ceiling on them. In many cases, having a price ceiling is strategic. In others, it is a failure to recognize the true opportunity cost of the ceiling. You are accepting a lot of dead weight loss in return for false security.

Too many people are putting elegant but fallible arguments around the 1970s phrase designed to save US automakers, “Buy American”. The US Automakers didn’t make as good a product as foreign car manufacturers and, in general, still do not to this day. These elegant but fallible arguments lead to good bite-sized talking points for social media and television, but result in very poor policy for our country.

Elon's American Party

Bad Idea? Or Good Idea?

People think in binary ways. Especially if they want to create drama. It’s all or nothing. That’s been the discourse on Elon’s idea of the American Party.

A third party is going to most probably fail in the US at this point. In our history, third parties have always failed. In most cases, they are splintered off of the Republican Party, and they wind up getting the candidate elected who is an anathema to the values the third party represents.

You can look at race after race in the last election cycle where it was razor thin. In a case where the Democrat beat the Republican, often it is the Libertarian candidate taking votes that most probably would go to a Republican who is the spoiler. In other races, a Green Party candidate elects a Republican when a Democrat would have won.

Bill Ayers took the long view. He fundamentally transformed the Democratic Party from within, and that led to the election of Barack Obama and the far, far, far left-wing cabinet of Joe Biden. Joe couldn’t name all of his cabinet members.

Given the proclivities of mayors in the largest American cities, it is not a stretch to say the core identity of Democrats today is Marxist adjacent, but very big government and centralized government program solutions to problems friendly.

To say Democrats are a far left party, not just left of center, is accurate.

Trump is remaking the Republican Party. The old establishment is being diminished. But, the Republican coalition is a lot different than the Democrats. It’s got several facets to it because it doesn’t favor centralized solutions to problems. It has competing interests. There are Republicans who favor foreign intervention with our military to solve problems. But, there are many newer Republicans who do not favor that approach, yet they still want a strong military. This is but one example.

The other thing to note about the Republican Party is that state leaders are rarely very strong. I can cite a few examples. California, Illinois, and New York do not have strong state leadership that vets candidates, supports them, raises money for them and gets stuff done. Otherwise, they’d be better Republican states. My new home state of Nevada has a feckless Republican leader who is all about himself, and not about the party. It shows.

In states that are truly “red states”, generally it is the governor who is a strong leader, and there are enough residents who have been persuaded to their core principled point of view. Florida and Texas are states like that,t but there are others. It’s also worth noting that the “Republicanism” you see in Florida isn’t necessarily the same as the one you see in Indiana or Montana.

The Republican Party is in the midst of abandoning the old corporate establishment class and remaking itself.

That’s why the time is right for a person like Elon to strike.

However, a true outlying third party is not the way. Too expensive. Too arduous given ballot restrictions and other artificial political roadblocks put up by both parties to stop competition.

There is another way, though. Elon could run candidates in races that have a high probability of success by conferring an “American Party” moniker on a Republican candidate. That would allow the candidate to run in the Republican primary. It would also give that candidate air cover to buck the party line when votes happen that normally a Republican would have to fall in line to vote on in order to keep party support and discipline.

For Republicans, the American Party people would be a pain in the ass, similar to what RINOs are now. Except, they would have a different agenda and vision than the RINO. Their core mission would be to end spending, shrink government, and decentralize it. At least, that is the vibe I am getting from Elon.

I thought this piece in American Greatness summed up the Silicon Valley ethos pretty well as it pertains to how startup CEO’s like Elon view the world.

Thus, I consider myself an expert on the mentality of the average Silicon Valley boss, and I can say this with certainty—people with that background tend to routinely and almost exclusively engage in binary thinking: 1/0, yes/no, true/false.

They are used to using math or engineering to solve a problem, and that means there is an answer. There can be some statistical variability around that answer, but the variance is hyper-small.

The other thing about a CEO is that they make a decision, and there is a chain reaction inside the company to make it a reality; otherwise, there are consequences. In government, that is NOT the case. Even a President can make a decision on an issue, and it takes a great amount of time to work through it. I once had a conversation with a Congressional staffer. He told me that he doesn’t see the results of a decision for years.

Elon got a close-up view of how the sausage is made in the factory, and he didn’t like it. Because Trump is who he is, he can’t sit still and be quiet and has to pick a battle to fight using words that are sharp and derogatory.

The American Greatness article accurately says:

Musk instead seeks the immediate, perfect answer: spending cuts in the current year that will eradicate the debt and the deficit. Mathematically this seems possible, and such mathematics appeal to the engineer in him, but he fails to understand that politically such an instant solution is utterly impossible and will accomplish nothing other than to turn America over to Democrats who care not even a little bit about the national debt and instead see that onerous debt as an essential component in achieving the America-destroying Cloward-Piven Strategy that will one day put the likes of Alexandria Ocasio-Cortez into high office.

If you are one of those opponents of the “uniparty” who see Musk’s third-party efforts as supporting your longing for fundamental change, consider that his central issue of minimizing the debt will serve only to draw away GOP voters. Democrat voters care almost exclusively about entitlement spending, and a reduction in the national debt is anathema to this ideal. The America Party will serve only to draw away MAGA voters from the GOP and will provide Democrats with the marginal advantage they need to rule America’s downfall into a neo-Marxist hellhole.

This is why my idea of infiltrating the existing Republican Party is a good one. Elon’s ideas aren’t anathema to traditional Republicans. The problem is they pay lip service to those ideas, and nothing gets done because of the crosscurrents and riptides of forces inside the Republican Party.

Running candidates with the American Party moniker inside a host that already has some favorable momentum to the ideas you espouse is far more efficient and better than starting from scratch.

I hope that is the way Elon is starting to think.

Happy July 4th

Fly the Flag

At our cabins in Minnesota, we always fly the flag. It’s on a private road. No one drives by except other residents. But we fly it anyway. At my home in Vegas, I am looking for the proper place to install a flag. I tried on the palm tree out front a couple of times, but the flag holder keeps falling out. I think I found a suitable place and will do it when I get home.

I have a friend who emigrated here from Canada. He is the biggest flag-waver I know. He made a flag pole for his golf cart. He made some more for some others, including me, and I fly the flag on my golf cart. I take it down sometimes and put the Cubs W flag up. No one knows the W flag, but I get compliments on the American one.

“Good to see someone flying the flag.”, people will say.

Bari Weiss had a nice column about America. Turns out, Ben Franklin created the first meme. Maybe Franklin invented the internet and not Al Gore. He knew how to take stuff viral anyway.

In another FP column, a woman who was raised as a socialist progressive talked about her personal evolution and relationship to the American flag. I am happy she has transformed, and empathetic to her that she didn’t grow up loving her country. We could probably have dinner together, though that is getting harder and harder to do for members of opposite parties. I have a significant number of people I know who have lost friendships and had family members abandon them purely because they are Republicans. Interesting that it rarely goes the other way.

I was playing pickleball the other day and a guy had on a t-shirt promoting ranked choice voting. I said nothing. No one said anything. I don’t think if I had a “Don’t Tread on Me” or a MAGA hat on, I would get the same reception.

Despite all our imperfections in America, people are still trying to get here. There are no problems with Chinese borders because no one wants to emigrate there. No one is emigrating to North Korea or Vietnam. No one is banging the door to get into Russia. Back in the 1970s, a bunch of Black activists decided they would go back to Africa. They came back to America. Even supposed utopias like Norway, Sweden, and Denmark do not have a lot of immigration.

Only Muslims are leaving their countries for Europe now.

I think there are a few concepts to remember about America if you are on the left, or if you are a foreigner trying to understand it. Maybe the first thing you should read is Alexis de Tocqueville. He was a European trying to understand the new nation. He got it and had high hopes for France, but they were dashed by the Jacobins.

Don’t have time? Here are some broad points.

First, in the preamble to the US Constitution, the first thing it states is, “In order to form a more perfect union”. The US isn’t perfect. It never will be perfect. It wasn’t meant to be perfect. It’s manmade, so it can’t be perfect. It wasn’t perfect at the beginning, and it won’t be perfect a million years from now.

But, it is the best country in the world if you want a chance.

I think it’s important to note that we read the words exactly at our country’s founding. The Federalist Papers do a great job of explaining. Later on, people tried to perfect the imperfect. Woodrow Wilson changed the 17th Amendment, leading to popular votes for Senate seats. That’s led to the bastardized Congress we have now. How different would the legislative bodies be if the Senate were elected by state legislatures as originally intended? I think it would work as intended. The Senate would work as the “cooling saucer” if it worried more about the states rather than the popular vote in the states.

FDR instituted the New Deal. Today, it’s become our tyrannical bureaucracy. We also have the problem of Social Security.

LBJ initiated the trillion-dollar failure known as “The War on Poverty.” It became a war for government money and NGOs. Bloodsuckers and leeches were fed. People were still impoverished. He gave us the wonderful problem of Medicaid and Medicare. Socialized medicine sucks.

It’s also important to note that the US has not been colonial like the European or Asian powers.

We came as liberators in WW1 and WW2. Not conquerors.

We fought one of the bloodiest wars in history to end slavery and free people in human history. Prior to that war, it was the Democrats who embraced slavery and wanted to keep it. Post-war, it was the Democrats who instituted Jim Crow. Slavery was our original sin at our founding. We bled for it.

Even in the Korean War and Vietnam War, we came as liberators. It was a Democrat, John Kennedy that got us into Vietnam and LBJ expanded it. Nixon got us out. Unfortunately, it didn’t work out in Vietnam. I know people who escaped North Korea. They love the fact that they are in the US now. If you see the videos of people who escaped Vietnam, it is heartbreaking. Given a choice between life and death, they chose life. My friend

Brian Lund

has blogged about his wife’s family’s journey. Incredible.

Chat up an older Vietnamese person who came over at the end of the war and see what they tell you. The church I grew up in sponsored a family. They had nothing. No clothes. Nothing. If they had stayed in Vietnam, they all would have been murdered by the communist government.

When the US engages in regime change we screw up. That’s not an American problem as much as it is an intelligence community problem.

What’s hilarious to me is that Thomas Jefferson started the Democratic Party. Yes, he owned slaves, so Democrats come by that sin honestly. But, Jefferson was for decentralization and small government. Democrats are not.

The culture of today’s Democratic Party is big government and centralization. Big programs. Taxing continuously, on everything. Redistribution of those tax dollars, which winds up going to their cronies, and doesn’t solve the issues they claim to solve.

“We are from the government, and we are here to help.” Reagan’s satirical statement on Democrats and the worst words someone can hear when they are in trouble. If you didn’t think it was true, ask the people in Hawaii, Ohio, North Carolina, and Los Angeles how well the government has worked to solve their disaster problems.

Virtually every major city has been ruled by Democrats for generations. Sort of like monarchies. Our cities today are basket cases where they used to be amazing. They can be amazing again, but one party has to get out of the way.

The Republican Party started in the 1850s. It was formed out of failure. Lincoln was truly the first standard bearer, and while Lincoln was heroic, he had his faults. He suspended habeas corpus during the Civil War and other liberties. Lincoln was not perfect, but after reading the book Grant by Ron Chernow, you could imagine what a post-Civil War America would have looked like if he had not been assassinated.

Republicans are far from perfect. Far from it.

But, they are the two parties we have, and because of inertia, network effects, and other forces, it is incredibly hard to change. Sisyphus would have an easier time.

But you can change the parties. We have witnessed that change in our lifetimes. Democrats used to be the party of the little guy, the small businessman fighting corporate power, and today they are led by the far, far left who, even if they aren’t outright Marxist, believe government should be involved in everything, and solve every problem. It is okay to be a Marxist/Communist/Socialist in today’s Democratic Party, and you will get leadership, respect, votes, and power. Scoop Jackson and Daniel Monihan are rolling in their graves.

We have also witnessed the change in the Republican Party. It used to be the corporate/country club party. Today, it is definitely not that. It is increasingly ethnic. The corporations have gone Democratic. It is the party of independent businesses, entrepreneurs, and the only place where small-government people have a home where they can get stuff done.

Libertarians are like toddlers. They whine, scream, and cry to get attention, but they have no power to do anything and no hard centering ideas. They are also not strategic at all. They should be ignored and put at the kids’ table.

Elon and others hate the big, beautiful bill. It will be signed today. They are directionally correct. It’s not the “small government bill” people wanted. But, in its defense, it’s a start. Rome wasn’t built in a day, and taking back our Republic and instituting what the Founders envisioned will take years. There is a lot to unwind.

The US is not about perfection, but about “more perfect”. The great news about the bill is that it further exposes Congressional members. Primary the ones that are for the status quo. Primary the ones that pay lip service to the deficit and do nothing about it. Primary the ones that are for big government. Elon and others with his beliefs can put money behind candidates and run them in Republican primaries.

Competition is good! It makes you sharper.

Bill Ayers offers the blueprint for Elon. He is a despicable man. But, he and his peons infiltrated the Democratic Party and changed it to what it is. They infiltrated our institutions and turned them into what they are. It took them a generation.

People like Elon have been coming here forever. People say we are a nation of immigrants, but that isn’t true. We were settled before immigrants decided they could take the risk to come. But, boy, aren’t we glad they came? Aren’t we glad we have the culture that lets them grab opportunities and go for them?

Lots of people have emigrated here. Below is a photo of my great-grandmother, Jennie Berg, that I grabbed off of Ancestry.com. I never met her or her husband. She came over from Norway in the early 1900s. I read parts of her journal about the trip. They left Norway, and a lot of people were there to see them off. Back then, it was doubtful that anyone would see each other again. Many tears. But my great-grandmother wrote that she was not sad in the least. She was happy to leave. She was incredibly hopeful to come to America. She met a man of German descent, and her name became Jennie Berg Merz. His family came over with the rest of the German migration in the late 1800s. She had two children, who had children, who had children. It’s the great American story. No doubt, your family has a similar story.

People who come here still have the same hopes and dreams today.

Fly the flag. It’s a great country. Best country in human history. Happy 4th. Celebrate with pomp and circumstance just like Adams and Jefferson said you should.